Evolving an Entrepreneurial Ecosystem (#31)

Structural Shifts with Ian HATHAWAY, Senior Fellow at The Brookings Institution

We discuss with Ian Hathaway — Senior Executive Director at Techstars, Senior Fellow at The Brookings Institution, and a Co-founder and Board Member of the Center for American Entrepreneurship and book author (latest book co-authored is called ‘The Startup Community Way’ ). In this episode, Ben and Ian discuss entrepreneurial ecosystems, what governments are getting wrong when they try to foster entrepreneurship and how they can create better outcomes; why entrepreneurship can lead to bigger and better outcomes than direct engagement in politics; why entrepreneurs are going to have more opportunities than ever during the pandemic and after it — and more.

Ian recommends:

 

  1. One book: “What You Do is Who You Are” by Ben Horowitz
  2. One influencer: Naval Ravikant
  3. Best recent article: What is a tech company, by Ben Thompson
  4. Favourite brand: Apple
  5. Productivity hack: Say ‘No’

The difference between a small business owner and an entrepreneur is the ambition to grow.

[00:01:22.21] Ben: So, Ian, thanks very much for coming on the Structural Shifts podcast. We’re going to cover in quite a lot of detail your new book. But before we get started, I just wanted to ask you a broader question, which is, in what sorts of health do you think American entrepreneurship is today? Because we sort of get the impression, because there’s been so many world-beating tech companies that have come out of Silicon Valley that everything is rosy. Would you agree with that statement?

Ian: So I view entrepreneurship much more broadly than Silicon Valley, for sure. In my framework, I think the difference between a small business owner and an entrepreneur is the ambition to grow. That’s much broader than most people think about in tech, but to stick to the tech and venture-backed world, the US market has a long tail, right? A substantial portion of startup activity, venture-back startup activity happens, of course, in the Bay Area, but an even larger portion happens outside of it. And in those markets, the capital efficiency maybe is what we’re talking about here, is much better. So Silicon Valley is just a completely different place, even within the context of the United States.

[00:02:43.04] Ben: But I was reading some statistics. Actually, the number of new companies that’s getting started each year, has actually been going down. So I’m just wondering, you know, do we have the impression that maybe entrepreneurship in America is kind of doing better than it actually is?

Ian: Well, so, the Business Formation Statistics, which you’re talking about is covering business owners of all growth, ambitions, all sectors, right? That’s been on a steady decline since the late 1970s. And in fact, that’s a trend that has been carried across all of the OECD. I believe that’s more demographically driven than anything — as population growth declines and as society ages, business formation rates, overall, are reduced. Now, businesses are also getting much bigger. There’s no rule that says, if the business formation rate is subdued, that businesses must get bigger. And overall, the average business is getting much bigger. There’s a huge debate happening on what the implications of that are. I think it varies substantially across sectors. But one of the things that I and some other researchers documented back in 2014, is that the business formation rate, even in the high-tech sectors is declining as well, which will startle a lot of people. But it’s just because that denominator is so resilient, and the companies are getting so big.

[00:04:14.19] Ben: What was the rationale for writing this book?

Ian: Yeah, I guess I should go all the way back to 2012. My co-author, Brad Feld, wrote a book called, ‘Startup Communities’, documenting his experience as an entrepreneur turned venture capitalist and community builder while in Boulder. He moved to Boulder in 1995, didn’t really know anybody, had a successful career in Boston as an entrepreneur, started investing in the Valley, New York, East Coast — and wanted to just get involved in Boulder. There was a lot happening, but it wasn’t really concentrated. And so, he spent, you know, the next couple of decades doing that work. He felt that Boulder was unique in terms of the entrepreneurial output that it has achieved and that that collaborative spirit, that community was a big part of that reason. So he wrote that book.

First of all, the entrepreneurs must lead the community. Secondly, the entrepreneurs must have a long-term commitment.

Ian: We started talking in 2016 about ways we might work together and one of the things we discussed was an evolution on his Startup Communities book and the frameworks that were included in that. Given that my background before working on a full-time basis with startups, as I do today, and big tech companies, as I did, you know, over the last decade, I was a full-time researcher. So, I have a research background and an economics background. And that was one of the appeals, I believe, for Brad was, “Hey, look, we’ve got knowledge and interest in startups and ecosystems, we have different frameworks in our heads. Let’s bring those together and see what comes out of it.” And so, that was kind of the script. And we began work in the spring of 2017. We had a bunch of fits and starts, a couple of hiatuses, nonlinear progressions, which we’ll talk about, I’m sure. And the book was finally published this last summer. So three years in total, from start to finish.

[00:06:13.25] Ben: Maybe let’s talk about what the first book is about, right? Which is principally about the Boulder thesis. So would you mind just introducing us to that, the four principles of the Boulder thesis in creating a community?

Ian: Yeah, so the Boulder thesis is simple, but not easy. First of all, the entrepreneurs must lead the community. Secondly, the entrepreneurs must have a long-term commitment. So originally, in the book that said a 20-year view; that’s evolved to a 20-year view from today, which means it’s always 20 years ahead of you. So, you’d be thinking in generations not in, you know, weeks or years. The third is that it must be inclusive of anyone who wants to participate. And the fourth is that it must engage the entire entrepreneurial stack, which I interpret as a derivation of inclusivity — so people from various domains, roles, experience levels, and so on. And that that engagement is constant.

if you think about a city as a series of systems, the startup community is the beating heart of entrepreneurship in a city

[00:07:12.29] Ben: You know, when you talk about a long-term commitment — so generational commitment — and you, yourself acknowledge that these things are hard, and the outcomes are uncertain. I mean, how difficult does that make it to recruit the key actors for a startup community?

Ian: It’s very difficult because most people don’t work on those time cycles. But there’s nothing that can be done about it because these long feedback cycles are inherent. That’s one of the reasons why we wrote this new book, which we can dig into that a little bit more, and why we wrote it in the way we did, which is explaining these systemic properties of startup communities and entrepreneurial ecosystems. But taking a quick step back, it’s also why Brad emphasized why entrepreneurs should lead the community. That’s not to say that non-entrepreneurs cannot be involved in building startup communities, helping founders, and in fact playing leadership roles, right? In many nascent communities, it’s these non-entrepreneurial community builders, whether as a side hustle or as their full-time job they are catalyzing efforts because entrepreneurs are heads-down, doing what entrepreneurs do, which is building their businesses. So, it’s not to say that, that non-entrepreneurs don’t have a role, but it’s that the entrepreneurs who are committed to being in a place for a long period of time, building their businesses there, knowing that it’s a — you know, even a successful outcome it’s 10 to 20 years before that liquidity event occurs, and those resources can get recycled back into whatever comes next. That’s just the reality of the situation. And so, that’s why the emphasis on entrepreneurs leading. Not only because the entrepreneurs are the ultimate end-users of the startup ecosystem — if they’re not benefiting from it, or participating or engaging, then it’s not valuable to them, which happens in many communities. But it really is an acknowledgment of the long-term commitment that’s required.

The mistake that’s often made is looking at the factors that currently exist in successful ecosystems and equating that with what it takes to get there.

Ian: Now, to build on that quickly, one of the things we talk about is the difference between the community and the ecosystem. Quickly, I’ll just say, if you think about a city as a series of systems, the startup community is the beating heart of entrepreneurship in a city. It’s really the founders, it’s the people who work with them on a consistent daily basis, whether as their full-time job or maybe something that they do outside of their job — maybe they’re mentors, maybe they’re angel investors or something like that. It’s having a firm understanding of what the entrepreneurs do and what they need, but it’s more than that. It’s also this kind of kinship connection, right? It’s a common identity, it’s kind of a love of place and that sort of thing. The ecosystem is a broader construct, which is, of course, all of these resources and actors who bring them that can either accelerate or impede the progress of entrepreneurship in a community. They have different organizational structures that align or are misaligned to varying degrees with entrepreneurship and entrepreneurial communities, they have different incentives — so, people want governments to engage a great deal in the building of ecosystems, which makes sense, because, you know, ecosystems in startup communities are sort of like a public good for the benefit of entrepreneurs. But governments have a much bigger mandate, right? So, their mandate is typically around creating jobs and having economic vitality and safe and enjoyable cities. And so, because of not just the hierarchical, top-down structure of governments not being aligned with the behavior of startups and startup communities, it’s also very different incentives.

Ian: And so, back to this long-term arc, this concept we discussed is community ecosystem fit, and why developing a strong startup community must precede the development of a robust ecosystem. Part of the motivation behind that was something we observed in many cities, which is you pull in these ecosystem actors — whether it’s potential angel investors, corporations, governments, and so on — their response was, “Well, you know, the entrepreneurs aren’t any good. You can tell me all day long I should be more collaborative and helpful and focused on the needs of the entrepreneurs, but all the entrepreneurs here suck. So why would I want to do that?” Now, we can push back on that and say, “Look, well, you know, what are you doing to help that situation? But fair point.” And so, once the startup community is producing a high rate of companies that are interesting, it then becomes a resource attractor that pulls those things in. And so, that’s a very long answer to your question about, you know, how do we get around that — this need for a long-term view — and my answer is that the entrepreneurs will be the ones who will create the interest by producing interesting companies.

[00:12:30.20] Ben: Is it not slightly a Catch-22 situation, where, when you’re trying to create a new startup community, we don’t have successful entrepreneurs? Because, you know, in a way, the community depends on being led by successful entrepreneurs and if they don’t exist, then it makes it harder to create that community, right? How do you overcome that challenge?

Ian: The mistake that’s often made is looking at the factors that currently exist in successful ecosystems and equating that with what it takes to get there. The resources, the actors, they co-evolve along with success. We’re going through the early days of a boom cycle, right? If you believe there has been this outward shift in technological opportunities, there has been a shift in certainly the supply of venture capital into these ecosystems. But these are emergent systems. And so, we can’t just force success. We can’t say, “Okay, these seem to be the ingredients of success. Let’s just place them here and then innovation will happen.” The reality is what’s valuable will emerge. There will be certain principles that apply across geographies, but it truly will be unique to each time and place. That’s an inherently uncertain process and when that gets choked off, progress is stifled. So, that’s the frustrating thing. The Catch-22 is really about that we want to manufacture success, but it’s the attempted manufacturing of success which is actually what can impede success from emerging from the bottom up, principally led by the entrepreneurs.

you can improve the odds that your company will succeed by being more collaborative and engaging in a community, regardless of where you live

[00:14:22.14] Ben: I want to talk a bit about what’s different, or what changed versus the 2012 book. So, you talked a bit about, you know, how you wanted to talk more about what you’d learned from Boulder. But I think also, this whole notion of an adaptive ecosystem is new in the second book. And then also, I think you took a much broader lens, right? So you wanted to look at the startup community and ecosystem through a broader lens, which included some of the geopolitical events that we’ve lived through in the interim. So, can you just talk about that — what evolved versus the original Startup Community book?

Ian: Yeah! So, our process is actually pleasantly recursive of a complex adaptive system. The process itself evolved. Our mission emerged from our process of discovery. So, the 2012 book was really about Boulder and Brad’s perspective of here’s what the situation was, here’s what we did, here’s what worked, here’s what didn’t, here was the outcome — of course, with it being about one place. You know, I thought that book was very principles-oriented. It was very actionable too. There were tangible ideas that people can go and try this thing or that thing. But because it’s about one place, it’s inherently limited. It was so early. I mean, Brad is really a pioneer in this thinking. And so, people in lots of places adopted the principles and the practices from that book. They found varying degrees of success with that because their city was so different from Boulder, and that’s the main criticism, that this is an idealized state of the world. If you’ve been to Boulder, it’s teeming with talent, large institutions, it has a huge entrepreneurial spirit, the community is so collaborative. I actually think the collaborative nature of the Boulder startup community is reflective of the entire Boulder community, rather than the other way around. And it’s just this fantastic place. So that was kind of the main criticism is like, “Look, try going to Paris where people undermine each other.” Nicolas Colin, our mutual friend, he wrote a book review of the Startup Community Way, saying, “There’s kind of this Kumbaya spirit emanating from Brad and then also Brad and Ian, which didn’t really apply in Paris.” And so, that’s fair.

Ian: But I still think, even if you view Boulder, which is not perfect as the idealized state of collaboration, there’s still a lot that can be learned from that. Why the evolution was, as startup communities, entrepreneurial ecosystems garnered more attention over the last decade, the scope and scale of ecosystem actors increased, right? Governments, corporations, universities, other actors, and so on, have been putting more resources, getting more involved in more places. And one of the things they were looking for were tangible frameworks, right? It’s very difficult to convince those actors without sufficient evidence, and theory and frameworks to guide, that this bottom-up approach of experimentation — learning — adaptation, which is so familiar to entrepreneurs and entrepreneurial community builders, that that’s actually the way to do this work, because it feels a little hand-wavy, right? It feels kind of like it’s bullshit.

Ian: And so, our mission was to say — and I think that’s part of the appeal of working with me, someone with an economics and research background to say — look, let’s dress this up with some data, let’s dress this up with some more theoretical frameworks. And that kind of was the initial mission, to do that. But through, I guess, maybe we were four or five months in, we have 30,000 words written and just think of it as, you know, Startup Communities 2012 book with more evidence, theory, frameworks, from economics, sociology, economic geography, that sort of thing. But it was still a linear progression from the first book. As I talked to more people, I realized that it was just this complete disconnect, almost of mental models about bottom-up versus top-down, you know, planning and execution versus experimentation and adaptation. And so, we realized that we were on a different mission. I don’t have a background in systems science. My background is in political economy and economics, but I discovered complex systems along the way. And as soon as I — you know, having talked to lots of people, reviewed lots of work — as soon as that framework came into my mind, I realized immediately that this is what needed to be the centerpiece of our book, to explain the inherent uncertainty, the nonlinear behavior, the uniqueness of each place, and why that presents these challenges. So, we threw the first 30,000 words or so that we wrote away and we began a new — and so, that sent us down this path of explaining the behavior of startup communities and entrepreneurial ecosystems through the lens of complex adaptive systems.

[00:19:48.24] Ben: So, I’m trying to draw a parallel: in nature, you can’t control ecosystems. You can merely sort of seek to guide them, to influence them. And this is very much the same philosophy you take with startup communities and the attendant ecosystems. But what are some of the equivalents? How do you give an ecosystem the energy, the nutrients, the oxygen to grow? What can be done that’s replicable across different places?

Ian: This is not to say that the inputs don’t matter, right? It’s an empirical reality that entrepreneurship, especially in the knowledge economy, and especially if we want to talk about tech and venture-backed entrepreneurship, is concentrated in certain types of places, right? The distribution is very spiky. That’s an empirical reality. It is beneficial to have a density of highly-educated, ambitious people, right? It’s advantageous to be around other high-tech institutions, whether they’re businesses or universities, and so on. Those things matter, but they’re not enough. What our point is, it’s about the integration of those elements, right? If I view the process of starting and scaling a high-potential company, as a search — not entirely, but to a large degree, it’s a search for the resources you need to succeed. Many of them exist outside the boundaries of the company, right? So, whether it’s a key senior hire, it’s early-stage mentoring — we talk about investment capital a lot, right? It’s a relationship with the customer. All these things are dependent on the exchange of intangibles, fundamentally underpinned by relationships, which require trust.

Ian: And so, what we’re really talking about when we talk about integration, is building better relationships. And so, one of the points that we make throughout is — and this is the part that’s empowering, especially for people in places that don’t have all these resources, where people do have ambitions, and they do want to be better, and they want to stay where they are — is by building a community of like-minded people who are committed to a cause — entrepreneurship, technology, they’re committed to that place — if they could be committed to each other, create a critical mass of knowledge sharing, support learning, sharing contacts, expanding networks, we believe that the odds of success for any one company will be greater. It doesn’t guarantee success, it also doesn’t guarantee success to be in Silicon Valley. It just improves the odds of success. I mean, maybe we could debate that today, if that’s turned negative. But that’s the fundamental point we’re making is, you can improve the odds that your company will succeed by being more collaborative and engaging in a community, regardless of where you live.

[00:23:10.09] Ben: And how do you get some of those stakeholders to be collaborative, and to not want to take control? Because, as you said, they’re not the principal actors; the principal actors or the leaders have to be the startups. But you still need the participation of governments, universities, organizations that are typically very top-down driven, very hierarchical. How do you get them to behave in the appropriate, collaborative manner to really help the ecosystem?

Ian: Well, it helps to have individual champions from those places. And this is a subtle nuance that’s missed. Sometimes it’s a key individual or individuals who drive the whole thing in a community. Fred Terman’s role, from Stanford and Silicon Valley, has been talked about a lot. Brad Feld, honestly, in Boulder is sort of a local hero. There are a number of stories throughout. There’s even one from the Viking Range Company — I don’t know if you’re familiar with that — but high-end ranges in the United States, a small town in Mississippi, there’s a famous story about how the founder of that company created an entire local services economy to support high-end families who would come to purchase these ranges. This role of a local champion can be really important, whether that’s in an official capacity or non-official capacity. Too often, though, however, these institutions are disconnected from the entrepreneurial community. University towns are a great one in particular. Even in Boulder, which is a city of 100,000 people, it’s fairly densely populated for having a small city vibe. The university is just adjacent to downtown, but in my experience, it’s very disconnected from the startup community. So in an ecosystem ranking or a research report, it might say, “Well, this is an example of a research institution that’s feeding entrepreneurship.” In my opinion, it doesn’t. So, it’s more about the talent that it’s producing, it’s drawing interesting people to the community, it’s driving economic growth. But I wouldn’t say that, that university and countless other places, are driving the entrepreneurial community. And in worst instances — I’ve seen in a bunch of especially smaller, less-developed ecosystems — there are what I’ll broadly call entrepreneurial supports; these are innovation centers, incubators, co-working spaces, and so on. They’re almost always funded by the government, and the people leading it have no entrepreneurial experience. What they have experience doing is extracting, or I should say, getting these initiatives funded by the government and maintaining those relationships. They at best, are irrelevant, and at worst, harmful. They suck the oxygen out of the community, and they can be actually predatory to entrepreneurs in too many places.

what each city is going to find is that about 10% of the companies will create 90% of the value

Ian: Going back to one of the first things we talked about, which is, if you live in an environment like that, the best thing you can do is to build a critical mass of people who don’t behave that way, to help each other. One of the things that I’ve found, even more transactional — I mean, I know it’s very easy, the American way is to say, “Hey, be informal, be collaborative, be helpful.” That can be seen as a naive view towards many cultures. But what I have seen is that when people do embody those values — being helpful to others, without expectation of something in return, being less transactional, at all times — that shifts the dynamic, and people start to think in positive-sum terms, right? Like, “Oh, well, if that person does well, that’s good for me, too. This is going to grow our ecosystem overall and that’s a good outcome for me as well.” And so, you know, my message would be entrepreneurs creating a critical mass, in spite of those obstacles. It’d be great to unlock the power or the resources that some of those larger institutions have, but you don’t need it. And one of the ways to get around that is by creating a critical mass, creating successes, and then those larger actors have to adapt or die because they’re no longer the most important force in that ecosystem.

[00:27:41.23] Ben: Do you think is as present now as it was historic? I mean, is it more difficult to find people that will act in that way, and with that level of generosity?

Ian: I believe the startup communities in which I operate — so this could be a biased view, just because of my network — but I find that the entrepreneurs are fairly collaborative. The Startup Community community is fairly collaborative, more so than obviously, many other sectors of the economy. I do think that mentorship is one of the ways that this has manifested, I think mentorship around entrepreneurship has been adopted pretty much worldwide at this point.

[00:28:27.09] Ben: You know, you’re giving advice to governments around ecosystem development. And what should they be doing? Because you’ve already said they should not be necessarily investing in or funding incubators, and accelerators. So what should a government do to foster a startup community and then an ecosystem?

Ian: Well, it’s not that they shouldn’t do those things. It’s the way in which they do those things. So, the first order of business is figuring out what is needed. I can’t tell you how many times, whether it’s from a mayor in the US to a minister of innovation in country XYZ, that says, “Oh, we’re doing this, this and this.” And the question I always ask is, “Well, you know, where did that idea come from? What do the entrepreneurs think of that?” And they never know. They’ve never taken the time to say, “Well, what actually is needed here? And what can we do to see that?” So that’s the first principle, which, again, it’s super simple, but it’s not easy because governments aren’t used to acting in that way. The second thing, it’s not that they shouldn’t fund accelerators, incubators, and so on. Actually, there’s a super important role for government to catalyze those things, especially early on, but don’t do it in perpetuity. Let the private sector fill in eventually. And make sure that entrepreneurs are involved. I’ve done some survey work on a bunch of different dimensions. And the number one thing — at least in the way that I’ve structured these surveys, where I’m kind of generalizing between positive and negative — on the negative side, the number one thing is not involving entrepreneurs with any of the decision-making process and how money is spent. That doesn’t mean you want to have an entrepreneur, necessarily, who’s the CEO of an innovation center, a co-working space, something like that. But you should have entrepreneurs involved with the design, and from the governance perspective, on the board. That way, we ensure that it’s relevant. Over time, the entrepreneurs, the successful entrepreneurs who are in that community should begin to fund those initiatives. Otherwise, again, they’re not valuable.

the most powerful political actors in the United States, where I’m from, are the people who’ve had the major entrepreneurial successes

Ian: So that, I think is more kind of the role of government, right? Be smart, be agile, fund many things, not just one thing — that tends to happen as well. You know, they’ll pick winners, and everything goes to this, they try to consolidate. But actually, I think a better thing to do is fund maybe a handful of things over a two or three-year period, and then let them be self-sustaining at that point, see what works, see what doesn’t. Also, think about stage. So, it feels to me like there’s been almost an oversaturation of very early-stage entrepreneurial support, in most places in the world. We saw the S curve adoption for accelerators. Now, there’s pre-accelerators, pre-pre-accelerators. And I think that’s fantastic! I think we have more experiments that are going on. But what each city is going to find is that about 10% of the companies will create 90% of the value. So it’s the ones who have achieved that product market fit who have the traction, and maybe are unclear about navigating international markets, or what it means to be a CEO in a company that goes from 10 to 50 people overnight, that sort of thing. There’s a huge under provision of that and I think that’s where the industry of entrepreneurship support needs to really fill in that gap. Because we haven’t seen that yet.

[00:32:17.03] Ben: In the book, you say, these are things that measure the things that are least important, right? But you’ve got a government that’s clearly very keen to demonstrate progress, very keen to demonstrate they’re getting return on investment. So, how do you get them to think about the right metrics for success, and to apply a long-term vantage point to this, when again, you know, they’re hungry for short-term success?

Ian: Well, the first thing that I do is explain to them that any metrics must be oriented around whatever the program’s goal is. So, if their ultimate goal is about job creation, wealth creation, okay, I understand that. But too many people will sell them a solution saying, “Oh, yeah, this thing we’re going to do, this program that is supporting entrepreneurship, will create x jobs.” Oftentimes, governments will fund initiatives and the key metric is how many jobs did this create at this point in time? Which is the wrong metric. What I might be more interested in is what kind of lift do they give to the marginal company who participated, right? How did, let’s say, a top of funnel community catalyst program, what kind of relationships spun out of that, if that’s kind of the goal? Or, what kind of people did it pull into entrepreneurship? So making sure that it’s structured around what the programs actually do, having a clear value chain that explains, okay, if job creation is actually what you want, how we get there is having companies with better outcomes. Let me tell you how you help companies have better outcomes, and we can create that value chain. But making sure what you’re measuring is actually built around the program.

Ian: The other thing, too, is that I believe that system structure explains so much of the performance of an ecosystem. So we’ve been doing a bunch of network mapping exercises in a few markets where we’re looking at who’s influential. There’s some academic research, and also some policy research that supports this, that when the influential actors in the ecosystem are entrepreneurial, have had entrepreneurial success, or they support organizations that are heavily influenced and/or funded by entrepreneurs, those tend to be more productive ecosystems than those with less. So, there’s empirical support behind these theories that we’re talking about. And so, that’s one of the things that we do, we map out the ecosystem. Who are the businesses that have reached to scale, have had some success, and how are they integrated in? What are they connecting up with? Often what we find is that the most successful entrepreneurs are isolated. They’re not linking up with any of these support programs. So, the metrics, in this case, are outputs. How many companies participated in this program? How many people attended this event? What I want to know is, have the most impactful companies touched any of these things we’re paying for? Or who is this angel investor over here who seems to be connected to every high-impact company that has come out of this community in the last 10 years? How can we engage her more in our efforts? What do they think we could be doing better? And just by mapping that out, and not only who the influential actors are, but how they’re all connected through meaningful relationships — whether they’re investment, mentorship, program participation — that explains a lot. And then you have a well-informed strategy about, again, taking the system’s view of how can we better integrate these things and make sure that the most productive programs have the resources they need, and maybe the ones that aren’t, that are just sort of creating a lot of noise, but not producing tangible outcomes, high-impact outcomes — maybe you start winding those down. And that’s okay. That’s normal and healthy.

[00:36:16.27] Ben: We talked about the introduction of the whole complex adaptive systems framework. We’ve talked about developing what was learned in the interim period. But the other thing that strikes as different with the second book, is this idea of it having a broader context. Now you’re looking at startup communities through a broader lens, including a geopolitical one. And you talk about your experience of living in London at the time of Brexit. I suppose the question I wanted to ask is, like, you know, you mentioned Nicolas Colin, but Nicolas has this view that, you know, almost through entrepreneurship, you can make a bigger change than you can through engaging directly in politics, for example. So would you say that, that was a big motivation for writing the book? And do you subscribe to that view that entrepreneurship can lead to bigger and better outcomes than a direct engagement in politics?

I’m incredibly optimistic about the future of entrepreneurship in America, in Europe, globally. I think entrepreneurs are going to have more opportunities than ever, coming out of this crisis, during this crisis. And we’re going to need that

Ian: Well, I’ll answer the second one first, which is, absolutely, yes. In fact, you might say that the most powerful political actors in the United States where I’m from are the people who’ve had the major entrepreneurial successes. So, kind of reverse engineering math. You know, I’ve always been fascinated by geography. I’m committed to entrepreneurship, working with entrepreneurs, writing about entrepreneurship, explaining the importance of it to economic vitality, and, you know, to vibrant cities. I’ve just always been interested in these things. But it’s also personal to me. Although I’ve spent most of my adult life in California — well, I went to school in Chicago, spent time there — California, Washington DC, London, I spent a little time in Geneva, we talked about that a few weeks back. I grew up in a small, agricultural and industrial town, in the Midwest, in Ohio. It was part of the Detroit supply chain. And we didn’t have a lot of opportunities. I was born in 1980. That’s when manufacturing employment peaked in that region. We had a self-sustaining community. But I was born in the beginning of the decline. My father is a brilliant innovator. He has no college, no university degree, but he has, I don’t know, something like 50 or 60 patents in transportation logistics. And it’s always been this weird thing. It’s kind of like, my dad had these jobs, but he had these crazy hobbies in redesigning transportation logistics infrastructure. But he was not successful economically in these endeavors. He was not a successful entrepreneur. And what I had thought about was, well, what if instead of being from where we were, where we lived, if we were instead from Palo Alto, California, if you just changed that one piece, would my dad have had a very different outcome? Therefore, would I have had a very different life trajectory and so on? And I think the answer is not 100%, but I would imagine the odds of success would have been much higher. And I would like to see that equalized more.

Ian: I think we’re living through an era where there has been a massive proliferation of entrepreneurial high-tech activity around the world. People forget — you know, I know that Silicon Valley gets a lot of the attention, but people forget how fast activity has diffused. I did a report in 2018 with an urban economist named Richard Florida, where we mapped just over a decade and a half period, about the spread of venture capital, which we used as a proxy for high-tech entrepreneurship. Not a perfect one by any means, but it is a reliable data source for what it measures. And, you know, I guess, in 1992, the US got something like 97% of all venture capital. It’s now less than half. It’s 40%. And I think half of that decline happened in the last seven years. So, people forget how quickly this is diffusing in geographies, not only outside of Silicon Valley, but outside of the United States. And so, I feel like my soul’s mission in this work is so that entrepreneurs, regardless of where they want to live, can improve the odds of succeeding. That doesn’t guarantee they will, but if we can move the needle, and so that people don’t feel like they have to ride the train an hour and a half into London every morning, just to have a job in the industry they want to work in or, you know, face exorbitant housing or wildfires in San Francisco, and congestion. Like, I hope we can move the needle on that. And so, that’s what’s motivating me.

[00:41:18.07] Ben: The neoliberal kind of supply-side economics view was that people have to move to where the jobs are, right? We need to get mobility of labor. But, one of the downsides is that it’s very detrimental to happiness, because people have to give up their community links and so on. And so, what you’re saying, your philosophy in life is to take the opportunities to the people rather than vice versa?

Ian: Yeah. And also, the reality is that high-profile, high-tech successes happen in way more places than people realize. A successful company can be formed anywhere. The question is, how repeatable is that process? What happens after that success? I’ll use the example of my adopted hometown where my family moved to, on the central coast of California, called San Luis Obispo. It’s a 45,000-person town, small university, huge agricultural element, beautiful place where retirees and people on long-weekend holidays like to go from San Francisco and Los Angeles. In 2015, there was a company called Mind Body, which it’s been a unicorn exit. They were the first company to really get venture funding. Like, nothing happened and then it went from basically zero to a unicorn exit. Now the question is, what happens next? So, I just spoke to an entrepreneur down in Orange County, California — for people who don’t know, that’s between LA and San Diego — and he was saying, “We’ve had loads of exits. But then, people don’t reengage. There’s no community.” And so, what we’re after is we’re not going to predict where the next unicorn or 100 million or 500 million exit occurs. It’s, can you increase the odds that they will occur in your place? And when they do occur, how do we build a community of support around that so that the people will want to reinvest and stay engaged, rather than leaving or, you know, going off to the proverbial beach and disengaging? And that varies across geographies, significantly. And that’s really what this is all about.

[00:43:29.03] Ben: And that diffusion of startup success that you talked about, do you think that’s going to accelerate now, post-pandemic? I mean, do you think being physically close to the other actors in the startup community and an ecosystem is still as important as it was?

Ian: I feel like distributed work, there’s been a permanent shift on that, at least in the United States. Our cities are unsustainable, to a degree. You know, cities in Europe are unsustainable, but they’re just completely configured in a different way. I mean, the San Francisco Bay Area, Los Angeles, they’re almost unlivable, they don’t have the right infrastructure. So, I feel like there’s at least a permanent shift in some of that activity. But we have to remember that even the people who are moving to smaller cities — second, third-tier cities — they still spent years building relationships in those larger cities, they’re going to have a meaningful relationship with those places. I mean, I don’t want to be remote 100% of the time, I don’t want to work out of my house. So, I actually like the model of, you know, whether my colleagues sit next to me on a daily basis is irrelevant to me so long as we have the foundation and we come together when it’s needed. I do believe that the human element is important. Having said that, if you’re an early-stage company on rapid product iteration cycles, that’s hard to be distributed. I mean, I think it’s okay to have a distributed company, as long as it’s by teams, especially having engineering teams where people are completely isolated, that’s really hard to do rapid iteration. So I don’t think that will be permanent.

Ian: Another thing is, you know, there’s been all these announcements from big tech companies in San Francisco, like Twitter and Facebook saying, “Okay, permanent remote work.” The key indicator for me will be what happens to the executives. If the executives don’t leave, then it won’t be lasting, because it’s a strong signal that if you want to be promoted in the company, you still need to be at headquarters. And that’s been going on for a long time anyway, right? All these satellite companies. I know people in Europe feel that strongly that a lot of these American tech companies like, you know, you’re always second-class citizen if you’re in one of the satellite offices. So, we’ll see if that evolves. So yeah, I think, more importantly, though, that we’ve just gone through a massive shift in society and the structure of our economy. Entrepreneurs are best positioned to respond to that. Some people are being forced into entrepreneurship, maybe for the first time. So, I actually see a huge explosion in entrepreneurship happening overall and I’m incredibly optimistic about that.

[00:46:30.09] Ben: You wrote quite a lot about having a creative class, a spirit of rebellion. And there’s that great case study of Jerusalem in the book — great work with it — where the guys visited by a public official, saying, “Oh, we’re going to seed 200 startups.” He said, “You’d be better off seeding 200 rock bands”. Do you need to create the draw to bring people in, that will then create the foundations for community?

Ian: I think it’s extremely important. You know, in general, people go to places for three reasons: they go to a place for work or opportunity. Second, they go to a place for family or personal connections. The third is they go to a place desirable. So, if you’re a place that’s lacking on opportunities — family is sort of, there’s nothing you can do about that, right? Family and personal connections. But the third thing, making it a desirable place. Absolutely! Especially now, if you’re trying to attract people from the entrepreneurial class, knowledge workers that we’ve proven can more or less be based anywhere, if you have an airport or rail links that can get you into those major markets in a reasonable way, and the communities are desirable, they have social, natural, cultural amenities — I think that’s what people want. So I think it’s hugely important. And also, you know, additionally, this is something that people in the traditional institutional actors, the governments, the other civically-minded corporations and universities and so on, can do something about. It’s a little more in their lane.

Ian: One of the things that I tell governments often is, you know, they so desperately want to do the exciting things, you know, “Let’s create a huge startup campus!” I think they like going to ribbon-cutting ceremonies — that is like a tangible thing that’s exciting and fun. But then it’s like, just stay in your lane. Like, is this a great city to live in? Paris, fix your traffic congestion problem! You know, like, why don’t you start there? Taxation, regulation, all that. But a big part of it is, you know, making your community a place where people with options want to be. A big part of that, for me, is a healthy and vibrant small business sector, right? Quality restaurants and bars and that sort of thing. And so, yeah, I think it’s hugely important. I can say it in eight different ways, but absolutely, yes.

[00:49:05.19] Ben: Yeah. And I think the proxy sometimes, for success, is to build infrastructure, right? But infrastructure won’t bring companies by itself.

Ian: No. Well, today’s infrastructure is what? High-speed internet and interesting places to work.

[00:49:22.20] Ben: Yeah, exactly. Because I think, yeah, the definition of infrastructure is often defined in the industrial age terms, which is, we need new roads, we need new railways. I think you’re right. I mean, the actual kind of conception of what infrastructure should be, probably hasn’t been updated in many politicians’ minds.

Ian: Yeah, absolutely.

[00:49:42.13] Ben: What happens for those cities and those countries that can’t create a vibrant startup community?

Ian: They’re probably falling behind if they haven’t already. Entrepreneurship, in general, is important for a more vibrant economy and community, creates jobs, provides better services, increases productivity. In normal times, you know, creative destruction, even in the small business sector is super important. Kind of old, tired businesses move out while young, exciting ones move in. Everything’s updated and reflects the current demands of consumers and businesses, right? So, we want a healthy amount of that in general. So, if we focus on just the innovation-driven businesses, they’re the ones… Innovation-driven startups are shepherding in new industries, new sources of growth. Oftentimes, economic development initiatives are focused on the industries of the past and present — cluster analyses, you probably heard that terminology. Those are the strengths yesterday and today, but what entrepreneurs do is they look for sources of new opportunity. So, again, can’t guarantee success, but a healthy amount of that going on is really good for the long-term prospects, not only for those companies that achieve success but for the entire community.

Ian: One of the best books on economics I’ve read in the last decade, is called ‘The New Geography of Jobs’ written by Enrico Moretti, who’s an Italian economist at UC Berkeley. And his overall thing is, look, let’s divide the world into two types. Let’s divide the economy into two types of businesses. There’s the non-tradable sector, which produces local goods and services; this can be high value, low value, you know, everything from taxis and barbers, all the way up to lawyers and doctors. The tradable sector produces goods and services that can be bought and sold all around the world. Everything from agriculture — food — to the high-tech, innovative sectors. Within the tradable sector is the innovative sector. And his whole thing is, you know, you don’t have to work at a high-tech company, or a knowledge-intensive company that’s tapping into huge global markets, in order to benefit from that. What you need to do, if you’re destined to be a barista or a school teacher, you want to live in a community that has some amount of that going on, because those are well-paying jobs, those businesses are bringing revenue, and so income and wealth into that region is then spent to support the local services economy. So you want a healthy amount of that in your community to propel long-term economic vitality and opportunities for people.

[00:52:55.17] Ben: What’s your view on Europe? Do you think Europe has enough vibrant startup communities? Do you think Europe is building enough digital-age businesses to be successful or to have the same level of success in the future that has had over the last few decades?

Ian: Yes, absolutely. You know, I’ve mostly spent time in London. London, to me, feels top of the stack in terms of not only entrepreneurial activity, but collaborative spirit. I feel like people are generally helpful, interesting, people are weird. There’s that spirit of rebellion going on. I can’t say too much about many of the other places. But what I will say is, you know, the US is at an inflection point, and we’re definitely, because of our political dysfunction, our inability to address major challenges, putting aside outright hostility to foreigners — including high-skilled foreigners — we’re losing our edge. We have a major election coming up and I think the outcome of that could have a huge impact on the future of innovation here, as a talent magnet. Another great book to read on that — Harvard Business School Professor Bill Kerr wrote a book called ‘The Gift of Global Talent’, and it’s documenting how the US has been by leaps and bounds, a major beneficiary of foreign talent. Foreign talent has driven our innovation economy to a very large degree. So, you know, if you’re a European founder, entrepreneur, investor in the US, you know, depending on your embeddedness in this country, and you’ve had enough of our response to COVID, maybe you spent the last four months back at home and you realized, “Hey, life is better here!” Because it is. I think the European lifestyle is much better overall. And so, you know, I think that’s one dynamic at play — the US losing its relative position.

Ian: And, as I said before, Europe is a great place to live — I feel like that makes it a talent magnet — and a lot of progress has been made in a short amount of time. I think that that’s one of the things people forget. There’s a book that I read, called ‘100 Years of History in Silicon Valley’ — something like that; I forget the exact title — and it talks about how it was 100 years unfolding. You know, this didn’t happen overnight. People really do forget that. I think the first proper venture firm was founded in 1959 and the evolution of Silicon Valley’s technological prowess goes back much further. I recently realized that that book was written in 1996. And now, we’re 125 years in the making. As I mentioned before, we more or less can’t document the presence of venture capital in Europe before the mid-’90s, really. Early ’90s. Now, there were some, but it was very disparate. So, you know, that’s kind of a lot of progress in a short amount of time. So, I just want to frame it in that so people are mindful of how much has moved forward at a very, very rapid pace.

[00:56:22.06] Ben: Just to revisit the US election for a second. I mean, you paint this as a really pivotal moment, which I think most people would agree with, right? Do you think that entrepreneurs in the US — particularly those that have been very, very successful, and have major influence — do you think they’ve been sufficiently political or vocal?

Ian: I don’t want to paint with too broad of a brush, because people are so different. But I think the general bent for American entrepreneurs is to be more conservative, politically. The definition of that has shifted dramatically. Hardcore libertarian streak. Of course, the irony of that emanating from Silicon Valley is, you know, how propped up Silicon Valley was, and has been? Well, certainly, in the beginning, stages, how propped up it had been by government spending? And some of these entrepreneurs — you know, Elon Musk, in particular, has been a huge direct beneficiary of that. So, you know, the question, ‘have they been outspoken enough?’ I don’t know. It’s kind of all over the map. You know, I do see the private sector actually advancing cultural and moral causes more so than our government right now. It’s something I’ve actually been sort of thinking about, lately, that it’s remarkable how outspoken companies like Nike have had to be around the racial inequity crisis happening. Well, I say ‘happening in America today’ — it’s actually been happening for the last 450 years. I was watching a major league baseball game this past weekend. And I know most people in Europe might not be familiar with baseball, but on the pitching mound, there was a logo, it was #BLM — Black Lives Matter. And the fact that sports, major businesses, so many segments of our society are coming forward in support of that, and yet, our own government is actually hostile to that — you know, a portion of our government is hostile to that. I think that’s pretty remarkable. Really. A lot of businesses feel the need to fill that void.

Ian: So yeah, I don’t know, that’s kind of a meandering answer, but it’s a little bit all over the map. But I think in general, you know, people are stepping up. So, I’m incredibly optimistic about the future of entrepreneurship in America, in Europe, globally. I think entrepreneurs are going to have more opportunities than ever, coming out of this crisis, during this crisis. And we’re going to need that. I would encourage the entrepreneurs themselves, people working directly with them, whether you’re in consulting, podcasting, writing, mentoring, investing, wherever you are in that entrepreneurial stack, to be more collaborative and helpful. I think we’ve learned the importance of community by having it taken away from us. In some ways, my community is stronger, I will feel so much more gratitude to be in the physical presence of others in the future. But it’s really this positive-sum mindset. You know, we talk about ‘give first’, help people without the expectation of receiving something in return immediately. It’s not naive altruism. You expect to get something, but you don’t know when or from whom and in what form. You know, I believe if the global startup community is stronger, and I believe if entrepreneurs are doing better, that I will benefit from that too, because I’m a part of this system. This is like a time to just be grateful for each other, have humility, and build community, and you’ll be much better off if you do that.

[01:00:25.05] Ben: Amen to that! Ian, thank you very much for your time! That was a great discussion!

Ian: Thanks, Ben! It was a pleasure to be here!

Igniting Entrepreneurial Sparks (#28)

Structural Shifts with Michel Jordi, serial entrepreneur

Full transcript:

 

 

We were four people at the launch of Le Clip. Six months later, in November, we were 50 people, and we produced 10,000 watches a day.

Ben: Michel, welcome to the podcast!

Michel: Hello, everybody! Thank you for having me here! I’m looking forward to a great talk with you!

[00:01:37.17] Ben: So Michel, in preparation for this podcast, we read your book — we read ‘Ignite That Spark’. I mean, it’s a wonderful book! You could call it a self-help book for entrepreneurs, but I think it’s more than that. I think it’s really a celebration of entrepreneurship. And so, we’re going to talk about this book, in quite a lot of detail. But I hadn’t realized, until you arrived this morning, that you’d also written an autobiography because my impression of this book was that, you know, I loved it, I would advise everybody to read it. It’s a very easy, compelling read, but the bit that it misses a bit is your life story. And then, when you arrived this morning you said, “Actually, I’ve got this massive tome, which is my autobiography.” And so, if you don’t mind, can we start there? Can we start with just a little bit of your background? How you entered the watch industry? You did your first startup at 23 in Japan — how did you end up in Japan? So, if you don’t mind, could you fill in the gaps on Ignite That Spark and tell us how you started in this industry and why you were in Japan in the first place?

my dad was my first role model, the perfect example of what I really did not want to do with my life — Michel JORDI

Michel: Yeah! It sounds interesting, thank you very much! You know, life is a journey and it’s a learning process. We learn every day. I’ve been a very, very curious person, enthusiastic, loving life. When I grew up, my dad had eight-to-five jobs, leaving every morning at 7:30, coming home for a one-hour lunch break, and go back to work until 5 PM. And when I saw him in action, my dad was my first role model, the perfect example of what I really did not want to do with my life.

Ben: Yeah, sometimes happens.

Michel: I mean, I decided right there in my teens, “This is not what I’m going to do. I want to be independent, to break free, to be my own boss in planning my day.” This was really my goal. Fortunately, I had a fantastic mother who, when I was 18 or 19, she said, “You have to go to England. You have to study English because if you don’t speak English you’ll never get anywhere in your life.” So I went to England — actually, not in London. I was at Leeds University, which was great because nobody spoke German or French there, so I was forced to speak English every day and to learn it quite quickly. I must say, it’s a great language — the language of Shakespeare, which I love very much. When I came back, my sister had already moved to Geneva because she wanted to improve her French and she said, “Why don’t you come down here?” So I still remember, 16th of April 1969, I ended up and I slept on the floor in my sister’s studio. That was my first night in Geneva. I immediately was very quickly in a company in Geneva, a watch factory. It was a time when the Japanese watches became very strong — Seiko, Citizen — and all their watches had metal bracelets, except the Swiss watches. We had only leather straps. And I remember, they put me in charge of the purchasing department there, at that watch company. And our salesmen always complained that we did not have any metal bracelets. So they told me to seek for metal bracelets. So, I looked around and I realized that the manufacturers in Switzerland, first of all, they were only very few and very expensive — 50 francs or more a metal bracelet. So, I looked around and I realized that all these bracelets came from Asia — Japan, Hong Kong, Korea.

[00:05:14.28] Ben: At that point, was the Swiss watch industry losing competitiveness because it didn’t have metal straps?

Michel: The Swiss watch industry was in deep trouble — really threatened by the Japanese watch manufacturers. As I said, Seiko, Citizen, Ricoh, Orient — these were the four big ones. But it was not only the bracelets, but technological changes. Number one, there were the quartz watches because the Swiss, although they invented the quartz watch, they didn’t believe in it. The Japanese used that technology and they made the watches always thinner, and thinner, and thinner. And the Swiss watches were big potatoes, heavy potatoes. Nobody wanted them in the world markets. And in addition, in all those warm and hot countries, humid countries, a leather strap is dead after three or four months. So that’s why the Japanese have metal bracelets. And I wanted to bring those metal bracelets to the Swiss watch manufacturers, as well.

Michel: So, I left for Japan — I was 23 years old — made a joint venture which was my first startup at age 23. And there, in Tokyo, I remember I had 10,000 Swiss francs in my pocket, and I knocked on the door of the biggest major bracelet manufacturer in Japan — 3000 people. And I remember as if it was yesterday, the president of the company, the chairman of the company, he received me there, I explained to him about my dream, what I wanted to do. He did not even let me finish my sentence. He just came out and said, “Jordi-son, you must have a big dream!” And so, he told me, “Look, if you don’t have big dreams, you never get anywhere.” You know, I expected that we would discuss five or 10-year plans. The guy spoke of the 21st century and the Silk Road long before it was a thing. He said, “Jordi, I’m going to make a silk road to Europe and you will be my first link.” That’s where it started. The bracelet was my first business. I founded that in 1971. And after about 15 years, I kind of got tired. I mean, business was flourishing, we made 25 million Swiss francs in sales with metal bracelets. I was the biggest supplier of metal bracelets to the Swiss watch industry. Everybody used my bracelets.

Michel: And then, Le Clip was my second company. The way Le Clip came along: I was always looking for new designs for watch bracelets, and we worked with a lot of freelance designers. And one day, I came into an office of designers, here downtown Geneva, and there was a drawing of a clock in the shape of a closed pack. There is a big clock, those taper clocks which you put in watch stores as advertising. And when I saw that clock — this was in 1985 — it was just shortly before the Swatch watch was launched. And when I saw that, it was within one night; it was a spark, really. A spark. I saw the whole business plan, I saw this, instead of a heavy brass clock, I saw that in plastic with colorful fancy designs, and to be clipped on and wore anywhere, everywhere except on the wrist. And so, the next day I went back to these guys, I bought the drawing for 1000 Swiss francs. And then, I developed the whole thing. And that was in September 1985. Le Clip was launched on June 10th, ’86. I mean, seven, eight months later, we were on the market.

[00:08:55.11] Ben: When did the Swatch watch come?

Michel: ’82 or ‘83.

Ben: Okay. So you were riding the wave.

Michel: Yeah. I was riding the wave. It’s true.

[00:09:06.25] Ben: Yeah. One of the anecdotes I loved from the book is that… So, you’ve spotted the opportunity to do something a bit different with Le Clip and you got some investors on board. And then, you said those investors became a bit nervous and they wanted some external party to validate the opportunity. And they called on McKinsey to do so. And McKinsey pretty much rubbished the idea, right? Or at least said that you couldn’t price it at any sort of premium. And you chose to just completely disregard the McKinsey report and just launch anyway, at the price point you’d already thought.

Michel: Yeah. I’ve mentioned this in my book, Ignite That Spark. For me, everything starts with a vision. And my vision was so clear about this Le Clip watch. I mean, as you said, I took the Swatch watch as a benchmark. But it was not a wristwatch. And our slogan, actually, was “The watch to be worn everywhere except on the wrist.” That was our slogan. And, for me, it was clear I had to position it at the same price as the Swatch watch — 50 Swiss francs. Not 49.95 or 51. It had to be 50 — exactly the same thing, with the same very, very trendy, colorful, advertising and promotions. And I was just sure. I work a lot with my guts. I listen to my guts. And I had the gut feeling that this was the thing to do. And I put 35,000 watches in production.

Michel: And in the beginning, the problem was I couldn’t find any retailers. Nobody wanted to buy that watch because it is not the watch you sell at traditional watch retailers. They didn’t look at it as a watch. So, I went to see department stores. And department stores loved the idea because it was colorful, they saw the success with the Swatch watch. And the big advantage that you have with the department stores is you get a lot of frequency. People come through. They just go through these stores, they see it, they look at it. And at 50 Swiss francs, you impulse purchase. But still, my two partners were afraid. They said, “Michel, you have to make market research.” So we did market research by McKinsey. And the report came out just about a month before the launch. It was devastating! “No one will buy the product. Totally useless. It’s a gimmick. Who the hell cares about a watch in a closed pack, and what is the watch for if you can’t wear it on the wrist?” And I used that, actually, as my promotional slogan: “The watch to be worn everywhere except on the wrist.”

[00:11:49.26] Ben: There’s a great photo in the book, with “You’re wearing it everywhere but the wrist”.

Michel: Yeah. Actually, we made the front of the People Magazine in the United States. Front page! And People Magazine into circulation is three and a half million, with 46 million readerships. We made the front page of People Magazine! It was amazing!

[00:12:10.10] Ben: So, please buy the book, but if you don’t — this is a photo of Jordi and he’s got watches hanging off his mustache, his hair, his eyebrows, his ear, his finger. It’s a very impactful image.

Michel: Yeah. And if you turn the page, you see Andy Warhol, who came as a special guest for the launch in New York, in October 1986. And, actually, he told the journalist, “I’m waiting for Michel to make a version to clip on my contact lenses.” I loved that one! He was a great guy!

[00:12:48.06] Ben: So your lesson from the McKinsey incident — we’ll call it that — was that you can’t put too much stock by market research. It can essentially prevent you from doing what your gut tells you — and your gut is sometimes a better yardstick of what might work than market research.

Michel: Yeah, for me, at least. I mean, I listen to my gut. Everything I do, I listen to my gut. Which, of course, it doesn’t mean that you’re always 100% right. I mean, sometimes you know, it is a little bit trickier. What market research does not do is it does not take into consideration your advertising expenditures and your promotions. I mean, we sponsored the Montreux Jazz Festival. We had an advertising budget of a million Swiss francs in 1985 or ’86. That was a hell of a lot of money. We had TV commercials, billboards, and the Montreux Jazz Festival. And people just loved the product! I mean, it took off like a rocket. We sold 1 million watches for 23 million Swiss francs in the first year. I mean, imagine, that’s almost 2 million per month for a startup in which the McKinsey report did not believe in the product at all. We were four people at the launch of Le Clip. Six months later, in November, we were 50 people and we produced 10,000 watches a day. I mean, just structure-wise, organizational-wise, everything was just so fast. It took off like a rocket. In all of my life, I’ve never lived anything like those first six months. It was just absolutely unbelievable! The sky was the limit — I can say that!

[00:14:42.29] Ben: And how did that feel?

Michel: It felt fantastic! It was so motivating! It was actually uplifting. We were like on a cloud. We were just running through the world on a cloud. It was unbelievable!

[00:14:59.08] Ben: One of the things I also liked about your book, which resonated with me was — I mean, it’s obvious when you talk about your dad’s life story that you wanted something that was in opposition to that rigid corporate life. But then, what you say in the book is that, as an entrepreneur, you feel the highs so much more and also the lows so much more. And so, I can just imagine how it felt to, first of all, prove all the naysayers wrong. And then, to get something out there, where you’re producing, 10,000 watches a day, and everybody wanted it. I mean, I can just imagine how that felt.

Michel: Yeah! I mean, department stores like Grand Passage in Geneva or Globus in Zurich, they had to empty their cash register on big days — Friday, Saturday — they were doing it three times a day. There was so much cash, they couldn’t put the cash anymore in. At that time, you didn’t pay by credit cards. You paid cash.

a lot of people say, “The business plan is dead, forget about the business plan.” I think it’s totally wrong. — Michel JORDI

[00:15:53.28] Ben: Yeah. That’s wonderful! So I guess, also, you were very much part of the renaissance of the Swiss watch industry at that time, right?

Michel: Yes! Which, as I said, was initiated by the Swatch watch. And this came along. It was in the same trend.

[00:16:09.29] Ben: So, in this story in the book, you talk a lot about your gut instinct. You also have this — you call it, ‘ready-fire-aim’, right? This idea that if the timing’s right, you’ve got to get something into market, and then you can iterate after that. But, at the same time, you talk a lot about the importance of writing a detailed business plan, documenting the mission, the vision. How do you reconcile the ready-fire-aim mentality with having really detailed business plans? Because this was one thing where I kept reading those two statements in the book and thinking “I’m not sure they’re completely consistent.” So I just wonder how you, yourself, reconcile those two.

in discussing with young entrepreneurs who always say “I have a great idea, I want to do this and this.” I say, “Put it on paper.” — Michel JORDI

Michel: The book is divided into four parts. Part one talks about the lucky clover, which is the first four commandments. And those first four commands are vision, guts, different, and timing. And I think these four are so important — and what I’m telling all young entrepreneurs is, “Fill this out — that lucky clover — and evaluate it with notes from zero to 10, for each of the four leaves. If you hit 40, you’re gonna have a home run.” In those three companies, I always had 40. And that’s why the three companies became international successes. I mean, Le clip, The Swiss Ethno watch, the Twins Heritage — they all were 40 point measurements on the lucky clover. But if you’re below 30, I think you should really worry about what you’re going to do as an entrepreneur.

Ben: Yeah.

The only thing that changes all the time is the market. So adapt to it. If you want to be successful and stay in business, you have to adapt to the market. — Michel JORDI

Michel: Then you have to start to measure what is missing, which of the four parts are not correct? What I’m trying to say in this book because a lot of people say, “The business plan is dead, forget about the business plan.” I think it’s totally wrong. Well, what I think is, it’s almost impossible to do and what is not right is when people ask you to make sales projections for the next three to five years. This is extremely difficult, especially for a new business. But what is important in writing your business plan is going through the thinking process of your business. It’s like what I also explained afterwards in my rainbow target, which talks about marketing, price positioning, and all these different things. It is very important, when you write a business plan, it forces you to go through the thinking process of your business, and then, suddenly, you get stuck somewhere. Did you think about distribution? Did you think about marketing? Did you think about the point of sale? All these things, you have to think of it. And I felt, in discussing with young entrepreneurs who always say “I have a great idea, I want to do this and this.” I say, “Put it on paper.”

Ben: Yeah.

Michel: The minute they put it on paper, they get stuck. They don’t know what to write on the paper. That’s what I’m trying to say, if you cannot put it on paper, that means your vision is not clear and it’s going to be very, very difficult to reach your goal. But then, as I also said, ready-fire-aim means you cannot always get all the parameters 100% the way you would like to have them, because there’s some gray zones. You don’t know exactly what to do. If you want to, just aim all the time, you can aim for 2,3,4 years — you never shoot. So there comes a time, there’s a certain factor of risk involved, you have to shoot and then aim as you go along because then, you really, in the real world, you’re in the market, and you have to adapt to that market at all times. Markets are changing. The only thing that changes all the time is the market. So adapt to it. If you want to be successful and stay in business, you have to adapt to the market.

[00:20:16.16] Ben: Yes. Jeff Bezos talks about this idea of being able to take decisions when you’ve got 80% of the available data.

Michel: Yeah. Exactly!

[00:20:26.15] Ben: So what you’re saying is a business plan for you is making sure you understand the big blocks that will be needed to be successful. So, understanding your go-to market plan, understanding how you’re going to do marketing, distribution — but it doesn’t have to be completely precise. And there’s no point in doing five-year projections.

Michel: Absolutely! I totally agree! No, I mean, as I said, you cannot always have everything right. There is a gray zone, which you only know once you’re in the market. That’s what I’m saying. Then you start to aim.

part of the problem is when you make a disruptive product — like Le Clip and also the Swiss Ethno watch — if you want to make a market research, you’re going to meet some people. They all say ‘no’. Do you know why? There are no benchmarks. They cannot compare with something existing. — Michel JORDI

[00:20:56.29] Ben: Tell us a bit more about the Swiss Ethno watch.

Michel: Well, as I said, I mean, from Le Clip, the problem with Le Clip was it grew so fast that I just couldn’t finance the whole project. I ran out of cash. So, I had to bring in an investor. And I was very naive and believed everything he said, instead of taking a lawyer or an advisor with me to make sure we all do every step properly. I trusted my two former partners, that they will take care of that part. But instead, they partnered up with the new guy, and they kicked me out. So I mean, a naivete. I concentrated on business, whereas they concentrated on what is the best way to kick him out so we can take control of the business, you know? And then, of course, I didn’t know what to do.

[00:21:55.29] Ben: You’re right! I’ve missed an important step, which was exactly this point, which is, you lost control of your own company. And I think this is, again, one of the lessons you draw in the book, which is around managing cash flow. Because this is a classic case of, you just grew so fast, there has been such working capital pressures on the company, that in the end, you had to take in what we might now call ‘vulture capital’ — you took in capital that came with, ultimately, in this case, really horrendous repercussions. So, talk to us a bit about some of those lessons. I mean, I think there’s a whole section here.

Michel: Yeah, it’s commandment number 10 — Cash Flow. Cherish your cash. Cash is your oxygen, as in if you run out of it, you die. But again, I went to IMD, I went to Harvard. That is exactly what they tell you everywhere: “Be careful. Don’t run out of cash. Grow slowly, because if you run out of cash, you may lose control.” That was the situation with Le Clip. And there was just no choice. It just went through the wall! You can’t stop it. You can’t stop it. But then, I mean, maybe today, what I would have done differently, I should have immediately taken my personal lawyer or advisor and make negotiations myself instead of my first partners doing it. Because, in the end, they just partnered up, as I said, with the new investor and kicked me out. I mean, the guy promised to invest seven and a half million Swiss francs in 1987. That was a hell of a lot of money. He brought two and a half million. The rest never came. So, I took a lawyer, I started to attack him, but I had already lost the majority when the deal was done. I was below 50%. And he brought only two and a half million. What can you after it? It was too late! I couldn’t come back. I mean, I was kicked out but as I said, in hindsight, you’re always smarter, you know what you should have done differently. I just had to acknowledge that this was one of my learning curves, one of the things which did go wrong, but I knew should have been done differently. But I can also say that had there not been Le Clip, there would never have been the Swiss Ethno watch because I couldn’t do this with the Ethno watch, without all the lessons, everything I learned from that first experience.

[00:24:34.06] Ben: And so, talk to us about the Ethno watch. First of all, where the idea came from, how you executed the idea, what you did that was different from Le Clip? So, building on the learnings from Le Clip.

Michel: Well, first of all, Le Clip was sold at 50 Swiss francs, it was a fashion accessory wore everywhere except on the wrist, but the Swiss Ethno watch was a classical wristwatch to wear on the wrist with a leather strap. But, what I did differently because after Le Clip, I made a trip around the world to see former friends, to get ideas, brainstorm what should I do next. I mean, I was devastated, I lost my ground, I had a family to feed, I had two kids. And I knew only one thing: that I wanted to remain free and independent. So, no way that I would go and work for somebody else. So I went around the world, saw old friends, and asked for advice, “What do you think I should do?” And several of them said, “Make your own watch. Why don’t you make your own watch?”

Ben: Yeah.

Michel: As I said, “Who is ever going to buy a watch where it says ‘Michel Jordi’ on the dial?” I just couldn’t envision that at this point. I didn’t have the confidence to put my name on the dial. It was my wife, actually, who convinced me. She said, “You have to do it!” She felt it was a great idea! She’s Korean origin, she has a big spirit and can think big. After a few months, I decided, “Okay, let’s have a go!” And then, these people I met around the world in Singapore and Japan said, “Why don’t you make a typical Swiss watch? Like the Swiss Army knife.” Now, what is so typical about Switzerland? The most typical symbols we have in Switzerland are the cows and the edelweiss. So I took to cowbell, embroidered the edelweiss on the strap, and the cows went in circle around the bezel of the watch — That’s exactly it. It was amazing! It was an amazing timepiece. But, again, part of the problem is when you make a disruptive product — like Le Clip and also the Swiss Ethno watch — if you want to make a market research, you’re going to meet some people. They all say ‘no’. Do you know why? There are no benchmarks. They cannot compare with something existing. So, they said, “This is a kitschy tourist trap. No Swiss will ever buy the product. Maybe you can find some tourists in Interlaken or Lucerne.” But I decided to do it anyway. I put 10,000 watches in production before I even had an order.

I did not sell folklore, I sold lifestyle — Michel JORDI

Michel: And, again, retailers didn’t want to buy it. I decided to make it rare and limit distribution to only 100 product sets. But each one of them had to invest in a package of 100 watches for 20,000 Swiss francs. And I managed to get them together. It was very, very hard work, a lot of persuasion, a lot of traveling, but finally, thanks to Bucherer — the big retail chain store, Bucherer — they ordered 1500 watches as a starter. And once I had Bucherer on board — the best retail in Switzerland — all the other followed because if Bucherer says that’s fine, then, I think it must be something good. So, I managed to put them together. I made an amazing launch. I invited them to launch the product to the cradle of Switzerland, at the shores of Lake Lucerne for an unbelievable launch party, for which they had to dress in their Swiss national costumes. They were all motivated and joyful. They all went home and said, “We’ve got to spread Swiss Ethno fever”, and suddenly the product took off. I can also say, one thing is, we spent one and a half million at the launch party, advertising, and promotion-wise. If you cannot advertise heavily in promotion, you don’t have a chance to bring the message across.

Commitment is 200% and you never think about the plan B, when you start. It’s impossible. — Michel JORDI

[00:28:47.04] Ben: Yeah. Because you’re trying to persuade people to change their buying behavior.

Michel: It’s a must. You have to make it a must. I wanted it to make it a must. But I did not sell folklore, I sold lifestyle. The most important thing was to sell it as a lifestyle product.

[00:29:04.23] Ben: There’s a few things to delve into, here. So, one is marketing. I mean, I’m a marketer myself, and so, I loved some of the things you were saying in the book about marketing, because my frustration or my critique of a lot of marketing efforts is they put too much emphasis on just one of the P’s — promotion. And what I liked a lot in your book is you talk a lot about the other three P’s. And one of the things you talked about a lot was these launch events and the impact you can have of getting something on the radar of people, of the consumer who’s time-poor, of the publications who are stretched in terms of resources. And so, a big launch event could catalyze the branding and the marketing of something new. So, can you talk to us about that? Because I think that, again, there’s a lot on this in terms of these launch events.

Michel: Yeah, it’s crucial. I think it’s crucial in our success. If you only advertise or communicate through classical marketing, you have those beautiful pages in magazines. But today you open a magazine, there are tons of advertising. Tons of advertising, also, of watches. But people don’t talk about an advert. They just turn the page. But when you make a crazy event, like what we did — we made a fashion show at Piccadilly Circus with cogs, a Swiss Folk group, and Swiss flags, as well. I mean, Piccadilly stood still. And then we made the Swiss Primetime Evening News. I made an advertisement at the foot of the pyramids, in Egypt. We took a sailboat up to the foot of the Matterhorn. All those crazy events. Then, what it does is, first of all, it projects the company as being very dynamic, disruptive, unusual. And, at the same time, people talk about it: “Did you see what the guy did? It was cows and edelweiss and camels in front of the pyramids or a sailboat at the foot of the Matterhorn!” People talk about things like that. So you can stretch it for quite a while. And especially, also, I always invited my retailers — the network — to these events, because I wanted them to be part of it. And very often, we didn’t just invite the owners, but the sales personnel because suddenly, the sales personnel was there at the launch with the owner of the company — with Michel Jordi. They could talk to him. You know, you have to be very humble in these situations. We’re all the same. And the retail, if you want to sell something, it is a long chain. Many people are involved and important for a sale. And I always say, a chain is only as strong as its weakest link. And, if at the front of the sales point, the salesgirl, the salesman, doesn’t believe in your product, doesn’t propose your product, you’re not going to make any sales. So, that’s what I say. Then you advertise. The last ‘p’, as you mentioned before, is the point of sale. If when you advertise, you cannot have a really optimal presentation, your product doesn’t stand out on the point of sale. You’re not going to sell it.

[00:32:29.23] Ben: And I suppose this idea of hacking — we might call it hacks or guerilla marketing — it’s actually become probably more, not less important, right? Because we’re all on our devices, we’re all even more distracted than we were in the past. So, it’s even harder to get on to the consumer’s radar because the consumer is more attention-deprived than ever. So I think the lessons in here are, you know, it’s not like because you were launching watches in the ’80s that these lessons are not applicable today. I would say they’re even more applicable today. And the other thing I liked a lot when you were talking about marketing was the importance of price on the one hand, but the other thing was packaging.

in my age, it was a shame to fail. It was a real shame. People looked down on you […] I mean, I failed four times. So what? Give yourself a chance to fail because, as I said, the most important thing when you fail is that you learn a lesson every time. — Michel JORDI

Michel: The packaging is very important. The first contact your customer has with your product it’s the packaging. First of all, you have to stand out! Of course, I mean, I’m lucky. I mean, I’m a Swiss citizen. What are the Swiss colors? It’s red and white. And red is the color of passion. Red was always involved in my packaging and everything. So red stands out. My books are red.

[00:33:39.15] Ben: Yes, that’s true! And also, for the Ethno watch, timing, again, was very important because you timed the watch to coincide with Swiss anniversary, right?

Michel: Yeah. Again, it’s part of the lucky clover — the first four commandments — as I said, vision, guts, differentiation. If you’re not different, if you don’t have a USP or a competitive advantage, you don’t stand a chance. And then, the last of these four is timing. And I realized that all these companies, which have been very successful, the timing was just perfect. And there’s a market research by American Venture Capital Group who revealed that 42% of startups fail because of bad timing. And I must say, sometimes it takes a portion of luck. I mean, the Swiss Ethno watch, without the 700 years anniversary, will probably not have been as successful as it was. Because we got a lot of write-ups from the press because we linked it with this 700 year anniversary. And if I come back to Le Clip: Le Clip was because I could jump on the bandwagon of the Swatch watch. And then, the Twins Heritage — I mean, imagine, my third watch, the Twins Heritage. I made Le Clip 50 Swiss francs. The Swiss Ethno watch, gold plate — 395. And then, after that, I come with the Twins Heritage — the price is ranged from between 70,000 to 220,000 Swiss francs for watches. When you go to any university, any business school, they just tell you, “This is simply impossible. You cannot, with the same brand, Michel Jordi — Le Clip was different — but from 395 you go up to 70,000 or 200,000!” Everybody said it’s impossible. And that’s what the press told me: “You’re crazy! It’s simply impossible. You’ll not be able to do it!” You know what? We made a fantastic launch event, with a great write-up in the Tribune de Geneve, production for Twins Heritage was booked out for a whole year within only two weeks after the launch. And we sold over 4 million Swiss francs of watches, in the first year. It was amazing! And because it was, again, something different.

[00:36:12.06] Ben: I just want to get back to the idea of guts, which is one of the four parts of the lucky clover. How do you rank guts? Because clearly, you’ve shown massive guts, putting a 10,000 order for Swiss Ethno before you’d even had a single retailer prepared to take it. It shows massive bravery. But, how do you rate guts out of 10? Because I can see how you could see what’s in the market and you get a sense for, this is 10 out of 10 differentiated. I can see how you can look at the timing and say, “Okay, there’s something I can hang this on.” There’s some market change or some technological change, and that’s the perfect timing. I can see how the vision you could rank it out of 10. How do you rank guts out of 10?

Michel: Well, I guess everybody has his own way of measuring his guts’ capacity or whatever. I mean, I just kind of developed it. Somehow I developed this and that was always very daring. I mean, guts is daring courage, risk-taker. I mean, guts has a lot to do with risk-taker. I took a hell of a lot of risks in my life. It also failed sometimes. I mean, that’s why I’ve fallen on my nose. But the good thing about guts, it’s like when you eat: sometimes you bite up a little bit too much than you can chew. So, you have to work your way through, to be able to chew it down and digest it. It’s the same thing with guts. Sometimes, you maybe took a bite a little bit too big. But it forces you to find solutions. You just have to go because giving up is no option. My book, actually, the autobiography, the English title, actually, is “Guts” and the subtitle “Giving up is no Option.” That’s the only thing, just guts. I envision things, I fix myself objectives. And then, of course, you have to weigh “How far can I go? How much can I bite up and hope to be able to digest?” And then you just have to run for it. You just have to work. It’s very, very hard work. And you just don’t give up. There’s no choice.

the best product in the world is of no use if people don’t know that it exists and where to buy it and why should you buy it — Michel JORDI

[00:38:36.20] Ben: Yeah. And another part of the book is where you were interviewed, and somebody said, “Well, what’s your plan B?” And you laughed, and you said, “There is no plan B”. So it’s gut almost like a proxy for just how committed you are to this?

Michel: That’s a very, very, very good question. As you say, correctly, this TV presenter asked me, “What’s your plan B for when you start your new company?” No. Commitment is 200% and you never think about the plan B, when you start. It’s impossible. That means you have two business plans. You have, “This is what I want to achieve” and “This is what I do when it fails.” That means that you plan to fail there in the first two weeks or the first two months. Forget it! Then you’d better don’t start. I mean, when you launch something, you plan to be there at least for a year or two or more. And since the markets are moving so much in six months, once you choose this, the market will be so different, everything’s so different than when you started out, that you cannot foresee what will be your plan B by then. So, just focus and concentrate on your success and make it happen.

[00:39:53.09] Ben: In the book, you point out that the pace of change is accelerating all the time, which is, I suppose, a good and a bad thing, right? Because more and more opportunities are opening up for entrepreneurs. And then, you say that also, that it’s become cheaper and cheaper to launch startups because the barriers to entry, the tech costs of creating a startup are falling. So, is your advice now, still the same as it was — i.e. create a business plan, have massive conviction, do the research, understand if it’s differentiated? Or is it more trial and error, now, because there’s so much change, to do more startups, to try more things?

Michel: Of course. Of course. I mean, time is now! I mean, your time is now. Of course, the thing is, you cannot stop progress, and we cannot stop where we are moving now. But I think every era, every period has its pros and cons and its advantages. I would say, today it’s so much easier to start a company, than in my time. First of all, in my time, it was almost impossible to find the money. We didn’t have the same technology. We had no computers, we had no iPhones, we had nothing. No smartphones. Today, all the tools are there. They are at your disposal. And also, I mean, in my age, it was a shame to fail. It was a real shame. I mean, people looked down on you, “Look at this guy! He failed!” I mean, I failed four times. So what? I mean, give yourself a chance to fail because, as I said, the most important thing when you fail is that you learn a lesson every time you fall. And, as I said, without Le Clip, I could never have done the Swiss Ethno watch; and without the Swiss Ethno watch, I could not have done the Twins Heritage. Everything became an evolution and was a fantastic learning curve. And what I can say, also, in hindsight, I don’t regret anything. I had a fantastic life. I enjoyed myself. I never looked at my watch. I never felt that I was working. Yeah, as a watchmaker, I never looked at my watch.

Ben: Yeah, as you say, it’s an irony.

Michel: I really had fun. I just lived my passion — and I think that’s the most important thing: people living their passion. I mean, life is so short and it gives so many opportunities. And also, when I mentioned the event marketing and all that stuff — today, things have not changed. Event marketing is still there. But it’s different because today you have the social media. With social media, you can make so much noise! You have Instagram, you have Facebook, you have all these things. We didn’t have that. So, the enormous opportunities and the advice I could give to young entrepreneurs who want to start their own business, start as early as possible. Start in your teens. The greatest thing to teens — 13 to 19 — because maybe you’re still in school, but you have peers, you have colleagues. You have no responsibility, no family responsibility, you have no kids. And it gives you a chance at 19 or 20 — you can fail two, three times and you’re still young to make it to the next point. And every time, you learn something, until you finally hit the jackpot!

in all of my companies, the most important for me was to surround myself with competent people — Michel JORDI

[00:43:31.13] Ben: I think this is, again, a really salient point, which is, you talk in the book about always being curious, always learning — which I’d say is, again, universally applicable probably more important now than ever, right? You know, you talked about your father’s life, this sort of rigid eight to five type setup and you wanting to do something different and be your own boss, and so on. But actually, almost like the option to have that rigid corporate life is disappearing, right? Because I mean, there aren’t so many jobs that you can do for your whole life anymore, right? So, it’s almost like more of a need to become entrepreneurs through necessity than was the case before. And one of your definitions of an entrepreneur is somebody who’s just constantly curious and constantly learning. Do you think you can teach that? Or do you think that’s just something that’s inherent intrinsic to individuals?

Michel: I think everybody has the ability to cultivate it. It’s an attitude. It’s an attitude to be curious. I mean, I’m so curious. I always ask a lot of questions. I want to know more, and I never take no for an answer. I want to know what is behind. And I think today, for the kids, they just have to be alert. Be alert. Eyes open, ears open all the time! And learn. Because, in the end, what is important is know-how. Through all the experiences we do, we learn a lot of things — which today we call know-how. And know-how is maybe one of the few things you don’t learn at the business school or universities. You only learn it by doing. So do it. Break your neck. Stand up and try the next thing. You know, without failure, there will never be any progress. You have to understand that. You know, the Wright brothers, the people who started to fly — how long did it take until you could fly an airplane? How long did it take until you could lift up and fly? How many people died? I mean, unfortunately, it’s the same thing, but the damages are not the same because you don’t lose your life. Those pioneers lost their lives.

[00:45:57.06] Ben: Yeah. Maybe we should talk about one of the things that didn’t work for you, which was the Swiss Icon. What was the reason it didn’t work, from an approach point of view? Did you apply the same methodology, the business plan, etc. to that business? Or was that one where you knew it was riskier because it didn’t score so well on the lucky clover? Talk to us about that.

Michel: It’s the perfect example. And I think it really rounds up my book because if I look at that lucky clover, at least two out of the four leaves were not optimal. The number one was timing — it was the worst time.

Ben: If you could just elaborate on that.

Michel: We launched it in August 2011. It was exactly when the Euro collapsed and so did the Swiss francs. And suddenly, you could buy Swiss watches cheaper in London or Paris or anywhere in the world, because the drop was over 20%. It was unbelievable! That was, even, at that point in time was almost par: one euro for one Swiss franc, for a couple of weeks. And so, of course, everybody stopped buying. I started to sell only on the Swiss market, concentrate on the Swiss market. So, time was definitely very bad.

Michel: Another thing was differentiation. It was a beautiful product. This is a beautiful product, I have it on my wrist every day, but it was not as different as all my other products. And when it is not that different, then what you need is you need very, very heavy advertising. You need a hell of a lot of advertising. And what we did, I had two partners in that company. So, what we did when the Swiss franc collapsed, we cut our advertising expenditure. Huge! We just crossed and stopped everything. And that was the first big mistake. And what we should have done is, if you cut the advertising budget, you should also reduce the price because suddenly that price — 7900 for a chronograph would only be paid if you advertised strongly so people would want to have it. But if you reduce your communication budget, your price should also come down, your retail. So maybe we should have sold it at 4900 or whatever, 3900. We didn’t do that. So it was definitely a mistake, a misjudgment, or whatever. But as I said, I also had two partners. I couldn’t do everything. I mean, the launch wasn’t the way I wanted to. And then came my bicycle accident where I lost consciousness and I had three broken ribs and things were going to get very, very difficult and more complex. And I decided, in the end, to sell the company to the partners and get out of it.

[00:49:08.10] Ben: So, was one of your learnings that when you’re launching a disruptive product, the advertising budget should never be seen as discretionary? Because it’s just trying to do something really disruptive — without the air cover of a big marketing budget is Canute-like, impossible to do.

Michel: Absolutely! You have marketing expenses — they are very, very important. You have to communicate, because the best product in the world is of no use if people don’t know that it exists and where to buy it and why should you buy it. Of course, I mean, there’s several ways of marketing. Also, what’s important is, I always try to first have trendsetters to wear your product because when you have trendsetters to go around and talk about you, it’s visibility. You need a lot of visibility. And you can only get that visibility when it’s the thing to have, which means you have to communicate.

[00:50:07.04] Ben: I would say that that trendsetter part is more important now than ever, also, right? Because we live in a world where branding is so tied to individuals. So yeah, having influencers wear your stuff. And when you were getting trendsetters to wear your stuff, did you pay for that? Or you just created a product that was so desirable that people wanted to wear it?

Michel: No we didn’t pay for it.

Ben: That’s what I expected, yeah.

Michel: But it was just so good, people bought it to have it. But we made it sexy. You have to communicate it in a sexy way and you have to package it properly. I mean, in the end, the product almost has to sell by itself. When you take it in your hand, there’s an emotion going through your body. You feel it. That’s the difference when you’re wearing a Swiss watch. A Swiss watch has a soul. If I buy a watch made in Japan or Korea or China, there’s no soul in it. It also gives the time, but it is no soul on it. I mean, the Swatch watch at 50 Swiss francs I think it’s the greatest consumer product ever made. Ever made. Because at that time, the watch was 50 Swiss francs. What other consumer product gives you technology, precision, mechanics, time, and lifestyle, for 50 bucks? It’s amazing! I think it’s a great product still today!

[00:51:42.02] Ben: Why do you say that Swiss watches have a soul in a way that other countries watches don’t have a soul?

Michel: The way we communicate it, the way we market it.

Ben: Yeah, because I think one of the things that Switzerland does brilliantly is packaging, right?

Michel: And communication. It’s communication. I mean, most big companies, they have a great slogan around. Look at the Rolex advertisement — it’s amazing!

[00:52:08.07] Ben: So, I just want to get you in a couple of other things that you talked about in the book. There’s a really nice soundbite where you say ‘talent wins games, but teamwork wins championships.’ Can you talk to us about the importance of building great teams and how you cultivate those teams?

Michel: I think it’s essential for every company to have a great team. And that’s exactly the slogan you just said: a team wins championships because, if you compare it with an army, there’s no use to be a general when the troops cannot follow you. Napoleon could never have won if the troops were not right behind him. And in all of my companies, the most important for me was to surround myself with competent people. You can read about them; I get a lot of testimonials in my book here. One of my guys is now CEO at Rolex Australia, another one is CEO at Bucherer in Lucerne, about 10 of them have started their own company. I have regular contact with them and they always tell me, “Michel, without you, I would have never been there.”

[00:53:26.12] Ben: So there’s two functions there. One is spotting raw talent. How did you do that?

It’s beneficial for the company to take a vacation, to take off. And this is what I think we have to understand. You cannot perform when you’re tired. Enjoy life! — Michel JORDI

Michel: Empowered them. Empowering people.

[00:53:37.17] Ben: But empowering people presupposes that they’re good in the first place. So how did you spot the great people? And then we can talk about how you empower them.

Michel: You know what? It is very fun and very interesting: I believe that a lot of people have much more talent and are much more capable than they think. But you have to give them the confidence. You have to detect and see where the strength is and let them go, let them loose. You know, I realized, when you let them loose or ask for them big things to do, it’s very motivating. Because they’re like, “My boss has confidence in me! He thinks I can do that!” I mean, the one who is now in Australia, the Rolex CEO, he was a watchmaker repairing watches at a retail shop in Zurich, and he was about 22 years old or 23. I said, “What are you doing here?” I mean, you know, as a watchmaker at his age, I saw that guy had potential. And I wanted to have salesmen going out to sell my watches, who know what they talk about — watchmakers. So I took him, I trained him on the Swiss market, then I sent him with my best salesman internationally, to the Middle East to learn about the international salesman. Then I told him, “Now you’ll go to Hong Kong and you’ll open my affiliate office in Hong Kong.” He opened my affiliated office in Hong Kong, and then made a business plan. We showed him how to do it. And the guy, he was 26 years old, he was trembling. He said, “Can I do it?” I said, “You will do it! Just go!” Throw them into the water, give them a chance to maybe make mistakes. But you learn from the mistakes. Again, they learn to swim.

[00:55:28.19] Ben: The impression I get when I listen to you is not only were you very much part of the renaissance of the Swiss watch industry, but also to the longevity of that Renaissance because of all the people that you coached and all the people to whom you gave opportunities? Would you say that’s fair? I know you’re a modest man.

Michel: I’m a very, very small part of that. And in the end, it’s still the guys who have to do the job. But if we come back to Bucherer, now the guy who is CEO, his second man below is also a guy from me because he was looking for a number two man. And I had him, he was a guy who worked in another company, in the Twins Heritage. So now Bucherer’s number one and number two, both come from my team. So these guys, once you give them the opportunity, they have to see their opportunity. They have to grab it. But very often, I think a coach’s job is to detect the ability, the talent and give them the confidence to really develop all their potential. Very often, they don’t even know what they’re capable of. So, develop that potential.

[00:56:48.11] Ben: The confidence and the opportunity, right? Because you did both, right?

Michel: Yeah. See it, have your eyes and ears open.

[00:56:56.03] Ben: And then what about leadership? Because it seems like you’re the sort of leader who leads by example, right?

Michel: This is leadership. Show them the example. Exactly. I mean, for example, you know, most of the time, I was the first guy in the office. Most of the time I was the guy who closed the door. You have to show them how to do it. Get your fingers dirty yourself.

[00:57:21.27] Ben: But having said that, you also talk about the importance of work-life balance in the book.

Michel: Yeah.

Ben: So, live by example, show the level of commitment to the business, but at the same time… Or would you say also lead by demonstrating to people the importance of not burning out, of pacing yourself off, as you say, eating well, living well, exercising.

Michel: I never had anybody in my company who had to burn out. But I must admit that I have been close to burnouts a couple of times. One of them was at Le Clip. I remember I arrived once in Vancouver on a Friday night and I stayed in bed the whole weekend and on Monday I traveled on to Japan, to Tokyo. I didn’t see anything of Vancouver except the airport. I was just so completely tired. So you have to listen also to your body. When you’re down, you’re down, then you have to rest. And what I learned over time is that when I grew up, you were a hero, and you wanted to show that you work hard and you work long hours. Today, I realize — that’s what I’m also trying to tell people is that the art of doing a good job is of knowing when to relax and when to slow down. So, I started to take long weekends, and that’s what I could suggest to anybody. A long weekend, let’s say three, four days, when you’re in the 30s or 40s. I mean, it can do wonders in regenerating yourself. Or take a week vacation — whatever — because when you come back, your mind is emptied, you know, and you have just so much energy. And it’s only good for the company. It’s beneficial for the company to take a vacation, to take off. And this is what I think we have to understand. You cannot perform when you’re tired. Enjoy life! That’s all I can say. I love to drink a good glass of wine. You work like hell during the day and in the evening, a good glass of wine — hey, what a pleasure! What a relaxation!

[00:59:31.07] Ben: Talk to us about why you ended up calling it a day when you realized that you didn’t want to do any more startups — and the conditions that then gave rise to you writing this autobiography, which sadly, is only available in German, right? At some point, maybe you’ll publish the English version. So, talk to us about that realization that enough is enough. It was now time to take a step back.

Coaches are so important, because, as I said, a lot of people lack the confidence. They don’t see all their potential and that’s what a coach is for. And I think, if I can help people detect their potential and live also, as I said before, a balanced and a rewarding life, then I think it’s a fantastic way to end the fourth part of my life. — Michel JORDI

Michel: Like I said, the lucky clover has four parts. Our life has different segments. There’s our youth, there’s education, then you start to get into the corporate drive, then you become independent as me, but then, I’m 70 years old now. I mean, you have to think how much longer you have to live? It’s 10 or 20 years if I’m very lucky, if God wanted. So, what do I do with the rest of my life? And I think the rest of my life is not going to be behind the desk and doing operations stuff. But coaching people, or consulting companies, detect talents or detecting opportunities. Coaches are so important, because, as I said, a lot of people lack the confidence. They don’t see all their potential and that’s what a coach is for. And I think, if I can help people detect their potential and live also, as I said before, a balanced and a rewarding life, then I think it’s a fantastic way to end the fourth part of my life. First of all, life is not a 100-meter dash. Life is a marathon. And it’s not like a football game where you have two halves. I think it’s more like basketball where you have four quarters or something like this. So I’m maybe a man now in my fourth quarter. And I think there’s still a hell of a lot to do and I’m looking forward to it.

[01:01:40.20] Ben: Fantastic! That’s a wonderful optimistic note on which to finish the podcast. So Michel, thank you so much for coming. Buy the book — Ignite That Spark — it’s full of sage advice, and it’s really a great read. You can read it in a single sitting. I think it’s also a reference — you can keep coming back to it.

Michel: Yeah, it’s like a Bible. You can take it back anytime. But also, what I said is, the book costs 19 Swiss francs — roughly $20. What I say to everybody who buys my book is that if you don’t get 20 bucks value or wisdom out of this, write to me, and I refund it.

Ben: You get your money back, guaranteed, from the man himself. Okay. Thank you so much again, Michel!

Michel: Thank you! It was great!

Debunking Innovation Myths (#26)

Structural Shifts with Gary PISANO, professor at Harvard Business School and author of “Creative Construction”

We discuss with Gary Pisano, professor at Harvard Business School and author of “Creative Construction: The DNA of Sustained Innovation” — a book about how large companies can construct a strategy, system, and a culture of innovation that creates sustained growth. We discuss how organizations learn, innovate, and compete — and these are fundamental questions that Gary has been exploring throughout his career. Today, you will learn the four archetypes of innovation, Gary’s definition of a business model, who in the company should own a business model innovation and more.

Gary recommends

  1. One book: An Evolutionary Theory of Economic Change, by Richard Nelson and Sidney Winter
  2. One influencer: Jon Gertner
  3. Best article: “Strategic Planning — Forward in Reverse” by Robert Hayes in 1985
  4. Favourite brand: Ferragamo®
  5. Productivity hack: no traveling!!

 

 

Creative construction is, really, the art, if you will, of balancing the need to maintain the existing business, but then explore and create completely new innovation opportunities. It’s different than a startup because a startup gets to start from scratch, but larger, more established enterprises can’t.— Gary PISANO

[00:01:23.25] Ben: So, Gary, thank you so much for coming on the podcast! As I was saying to you before, I absolutely loved the book! I think what’s kind of special about it is it’s obviously very instructive about how to do innovation in the face of uncertainty, and imperfect information, and everything else. But it also challenges and debunks a lot of our received wisdom about innovation, including the central idea of constructive or creative construction. How do you define creative construction?

Gary: For a company, it’s like rebuilding the house as you’re living in it. So, for established companies, the knock on established companies is that they are so consumed with their existing businesses, they can’t do true innovation. So, this book tries to debunk that myth and provide some ways in which bigger companies can do that. But they face challenges, obviously, because they have existing capabilities, existing businesses. So, creative construction is, really, the art, if you will, of balancing the need to maintain the existing business, but then explore and create completely new innovation opportunities. It’s different than a startup because a startup gets to start from scratch, but larger, more established enterprises can’t. So I guess that’s how I would define creative construction: is that act or that art of searching for transformative innovation opportunities, all the while maintaining your existing business.

[00:02:56.12] Ben: Even though it’s harder for large companies to innovate and they have this treadmill effect of a bar that’s being constantly raised, they nonetheless do have many advantages when it comes to innovation, right? So, as you say in the book, they’ve got resources that startups can only dream of, and they can actually have a portfolio of different innovation projects they can work on at once. What other advantages would you say that large companies have when it comes to innovation?

I always say that strategy is where you spend your money and an innovation strategy specifies very clearly, “Here are the top priorities we have for how we’re going to innovate, the kind of innovations we’re going to do, and this is where we’re going to place our chips.” At a very simple level, that’s what an innovation strategy is. — Gary PISANO

Gary: I mean, they have a lot of skills and capabilities that often get overlooked, just things that are in some ways written off as blocking and tackling, but they’re incredibly important. So, logistics and distribution, salesforce that can cover the world, and knowledge about regulations, and experts in the company — the expertise in larger enterprises is actually quite deep. I mean, I’ve been involved in a lot of smaller companies and you get great people, but you’re smaller so you don’t always have the world expert in a particular market or a particular technology, so you’re always trying to reach out. But in a larger company, you actually do have a pretty deep bench. And so, there’s people to draw from that can be extraordinarily helpful in all facets of innovation, whether it’s the technology or the commercialization, the supply chain, the marketing. And I think that’s often overlooked as well, in thinking about their advantages.

[00:04:24.19] Ben: Do you think one of the most dangerous tendencies with strategy is to apply inductive logic? You know, this idea that just because a company over here did something in a certain way, and it worked for them, therefore, it must work for our company. Because, as you say in the book, there is no magic formula for strategy, and there are no universal sets of best practices for innovation. So, would you say that’s a really dangerous road to go down, that idea of ‘because it worked here, it must work there’?

Gary: Yeah, absolutely! I mean, you have to be thoughtful. You can use analogies — and people have written about that, and we all use analogies to reason in all aspects of our life, including business and including strategy — but you have to be thoughtful about how those analogies apply and what is applying, and most importantly, what is different. A lot of times, we focus on what’s the same, but we don’t focus on what’s different. I tell this funny little story to my students about it, because they often get the analogy, and I’ll say, Well, I play a game — my daughter is now four — I played this game with her called, “Are you a bear?” And I’d say to her, “Are you a bear?” And she’d say “No.” And I’d say, “Well, do you like honey?” She goes, “Yes.” “Well, bears like honey. Do you like to swim in the water?” She says, “Yes!” “Well, bears like to swim in the water. Do you like tuna fish?” She said “Yes.” I said, “Well, bears like tuna fish. I mean, you like to play outside — you like to do all the same things bears do so you must be a bear.” That’s the analogy of focusing on what’s the same. And we laugh about it, but that’s what companies do all the time. They look at what is the same and say, “Well, this is the same, this is the same, this is the same, therefore we must be the same.” It’s like, “No, you have to look at what’s different!” It’s a logical flaw that is so commonly made in strategy-making. And so, yes, you do want to use analogies, but you want to be really thoughtful and then understand what’s different here? And then, how do you adapt your strategy to what’s different about this situation?

[00:06:27.13] Ben: How would you describe an innovation strategy?

Gary: At a very simple level, it’s a commitment to how you’re going to spend your resources or focus your resources on the kinds of innovation you’re going to go after. I always say that strategy is where you spend your money and an innovation strategy specifies very clearly, “Here are the top priorities we have for how we’re going to innovate, the kind of innovations we’re going to do, and this is where we’re going to place our chips.” At a very simple level, that’s what an innovation strategy is.

Gary: At a more nuanced level, it’s also the kinds of values you’re trying to create, the similarities or the pattern of how you’re going to address the market. So, for instance, Apple has historically focused on ease of use. That’s been part of their whole business strategy. They have historically tried to innovate, to make things easier to use. Some companies have focused on safety and that’s been a pattern over time. It’s tying the innovation strategy to the business strategy. But it creates a clear set of priorities in everyone’s mind about what’s important and what’s not important.

a lot of innovation is not about the technology, it’s about the change in the business model. — Gary PISANO

[00:07:34.04] Ben: In your book, one of the quotes I liked was you said, “Without an innovation strategy, innovation improvement efforts easily become a grab bag of much-touted best practices.” What exactly do you mean by that? Just that they’re sort of completely unconnected?

Gary: Yeah. I mean, think about today. You know, you go into a lot of companies and you say, “How are you approaching innovation?” And they say, “Well, we’re doing open innovation, we’re doing crowdsourcing, we’re doing design thinking, we’re doing empowered teams” — and these are all perfectly reasonable practices but it’s like building a car by taking a bunch of components, really good components, and just throwing them down and say, “Well, but that’s not a car, that’s just a bunch of components.” You’re connecting those practices to the kinds of innovation you’re going after. So, for example, design thinking is great, but it doesn’t work for all kinds of innovation. And so, if your strategy is about a different kind of innovation, don’t do design thinking. Open innovation is terrific for certain kinds of innovation, but not for others. So, you have to ask yourself, “Is that the right tool to solve the strategic problem we’re going after?”

[00:08:36.06] Ben: Why do you think that happens, though? Do you think it’s just because there’s external pressure maybe from shareholders or the board to be doing something? And so, it’s very easy to self-demonstrate that you’ve opened up an innovation lab or whatever. And so, that almost supplicate some of those external parties, and it’s, in reality, much harder to come up with this integrated innovation strategy?

business models are, in a sense, promises to others. So, they’re kind of a promise to your customer about what’s the value we’re going to create for you. It’s a promise to your shareholders about the value you’re going to distribute, it’s a promise to your employees about the value you’re going to distribute to them. In a sense, a business model is really a set of contracts— Gary PISANO

Gary: Well, I think it’s partly that, but I think it’s partly because we all want simple solutions to complex problems. I probably fall into this trap myself when I think about my workout regime and what I’m reading and I want the perfect training program to get me ready for a marathon with as little effort as possible. Is there the once-a-month training program that will have me ready to run the marathon or something? I think we all, at complex problems, we want simpler solutions. And I understand that executives are busy, there’s a lot of pressure, there’s a lot going on. So, that kind of magic bullet, that universal solution is very appealing. And then, what ends up happening is you have people who sell these to you. Not to be cynical here, but there are consulting firms who make their money selling you a particular tool. And so, they’ll say, “This is design thinking.” And it all seems so easy: “If you just adopt this, your problems will be solved.” And I think what I tried to do in the book is get folks to realize it’s a lot harder than that. And, as I mentioned in the book, innovation is hard. That’s the value of it. If it were easy, everybody could do it and if everybody could do it, every company would be innovative, and it wouldn’t be a source of advantage. You know, there’s a reason companies like Google and Apple have market caps, I don’t know what they are these days because the market’s all over, but, you know, close to a trillion dollars — because they’re innovative and other companies have been less innovative. And so, it’s never going to be easy but I hope to make it a little easier, or maybe not quite as hard. And so, I think we have to dispel that. I think if you go into the innovation journey with that sense of, “This is actually not easy at all, and we’re not going to sell it as easy, and it’s going to take a lot of concerted effort, and we’re going to have a lot of stumbles along the way, but it’s our strategy to get there, and we’re going to keep focusing on it”, then I think you stand a reasonable chance.

[00:10:55.17] Ben: In the book, you include an Innovation Landscape Map, which I found to be really, really useful. Can you quickly just talk us through that Innovation Landscape Map?

Gary: Sure! Yeah. It’s based on not just my research, but many, many people have worked on trying to characterize innovation in the field, for decades now. So this was really a synthesis of both my thinking and many other people’s thinking. We often think about innovation in terms of the technology and the technical dimension: how big of a leap is this, technologically, for us? Are we a hardware company that’s now forced to do software? Etc. But there’s this other dimension, which I think we’ve learned about in the last 20 years, which is, there’s also a business model dimension. So a lot of innovation is not about the technology, it’s about the change in the business model. And so, you kind of put those together and that’s how you get the two by two of, is this a big change from a technology point of view or not? Is it a big change from a business model point of view?

Gary: And I think where that gets helpful is you get these four archetypes of innovation: routine, radical, disruptive, and architectural. You can, at least, start to understand or have discussions about, what is it the lever that we’re going to push on? Are we pushing on the technology dimension because we think our business model is actually quite strong, but we need better technology or new technologies to reinforce it? Or the problem is that our business model is obsolete, and we need to radically change our business model and do more disruptive things? Or is it a combination? And I actually think the combination gets interesting, as I think many times we fail to realize how technological change has implications for our business model. We put a graft on the technology, on our existing business model, when in fact, technology changes what we can do from our business model point of view.

[00:12:50.07] Ben: One of the things that I really liked about that map is it sort of gives almost equal importance to business model and tech, which is not something that normally happens, right? And, I suppose, one of the questions is, if a company should be constantly assessing its business model in the same way it constantly assesses the adequacy of its technology, whose job is it, within an organization, to be looking constantly at the business model? Because it seems a bit like that’s a blind spot.

Gary: You have hit it right on the head! I mean, if you ask in any company who’s in charge of technological innovation, they can literally point to a person; they could say, “So and so is the Head of R&D. So and so is the Executive Vice President of R&D, they ultimately have responsibility.” Then, if you ask the same question around, well, who’s responsible for business model innovation — you’ll either get no one or everyone, which actually means the same thing. And so, you’re right. So, no organization really has that. I think that’s why Senior Executives, Senior Leaders, General Managers really need to own business model innovation. So, just like the way you think about the Vice President of R&D or the Head of R&D owning technological innovation or being responsible for it, I think the business unit leader — the General Manager, the CEO — they own business model innovation. I think that’s the only solution. I think you can have groups that help you do it but I wouldn’t want to set up a separate group called ‘business model innovation’ because it’s really so part and parcel of everything the company does that I think it just belongs in the hands of the General Manager. That’s just an opinion. People haven’t really done a lot of research on it. But I think organizations that are good at evolving their business models, it’s really, they do come from the general management, the CEO or the business unit leaders.

[00:14:40.28] Ben: It is considered best practice to spend, I don’t know, like 80% of your R&D budget on routine bets versus 20% that should go on more radical bets or whatever; that there’s some sort of pre-determined formula for deciding which of these boxes to concentrate on. But, in reality, what you say in the book is that you need to be very careful in making the allocation because allocation looks different for every company. What’s the counsel that you give to companies about where to invest across this map?

Gary: Yeah. While there’s no universal formula, there are some things you can think about, there are some factors. I mean, certainly one is, you have to look at your core technologies and really understand their headroom for improvement. So, some technologies have been around a while, they’re running out of steam, you’re running into diminishing returns, and improving them in ways that would create value for customers, that’s got to worry, right? I mean, once you start to see that — and you can map some of these, actually quantitatively, if you have certain performance dimensions, and you can look at incremental improvement, and ask yourself, how much more can we improve this? You start to see this happening in semiconductors as you reach the incremental line with reductions and Moore’s law, and you say, how much more power can we get out of this, with the given technology we have? You could start to see these things somewhat in advance.

Gary: The second part, though, is really on more of the market side: what do customers want? And what are they willing to pay for? So, sometimes technology can improve, but the customer is not willing to pay for any more functionality there. They’re saying, “I’ve got enough!” I use the example in the book about the Gillette razor and how much closer do we want to shave. And, you know, I won’t pay that much more for a closer shave because, at some point, I can only shave so close before it’s scary. But I will pay for convenience. I will pay for other things. So, you have to look at that dimension as well: where are you in the market cycle?

Gary: And then, you know, you have to look at competitive dynamics. What are competitors doing? And how are competitors changing? So, several of those things kind of come together to help you plot out where you may want to lay your chips and say, look, the opportunity for us to create an advantage and create value is maybe more in business model innovation and technological innovation. Or maybe it’s the opposite; maybe, really, our business model is pretty rich and it has got a long way to go, but our technology is not able to deliver it. Or maybe you discover in this analysis, look, it’s both — if we push the technology in a certain way, the only way we’re really going to create value is by changing our business model. And that would then get you to start to do experiments with your business model, as well.

[00:17:37.06] Ben: Do you think is harder for a company to change its business model than to change its tech?

Gary: Yeah, absolutely! Because I think the business model really gets to a lot of the core DNA, the financial DNA of the company. And business models are, in a sense, promises to others. So, they’re kind of a promise to your customer about what’s the value we’re going to create for you. It’s a promise to your shareholders about the value you’re going to distribute, it’s a promise to your employees about the value you’re going to distribute to them. In a sense, a business model is really a set of contracts. I don’t think it’s ever been formally posed that way. My economics training is in a branch of economics, it’s actually in Contract Theory — Oliver Williamson, the Nobel Prize who I heard just died this past week, who started Transaction Cost Economics. That’s essentially what I was trained on. I was a student of one of his students. So, I always tend to think about things contractually and a business model, really, is a set of contracts, implicit, if you will, promises about the value you’re going to create and capture and distribute. And a business model change means changing those promises and there can be costs to changing those promises. Your shareholders may say, “Well, we don’t like that. That’s not what we signed up for.” Or employees may say, “That’s not what we signed up for.” You may have unhappy employees and that can get costly if you have to make changes there. And sometimes customers don’t like it. We’re living this now, in education, as we, in the last few months had to shift a lot of things online because of COVID. Our customers, our students were like, “But we did sign up for online. That’s not what we paid for.” I think you’re hearing this around the world, students saying, “We signed up for a different experience. That’s a different value proposition.”

[00:19:20.23] Ben: And, in some senses, is it also harder to spot when your business model is becoming obsolete? Because, in a way, if you spot that there’s a big technology chain coming, like, you know, cars are being electrified or whatever — that you have some time to react, and you can map out how that might impact your business? But, in some ways, it’s like, it’s more difficult to get the early-warning signs that your business model is not optimized, right? So, how does a company check-in and routinely test whether its business model is optimized?

Investing in flexibility when uncertainty is high is a really good idea. — Gary PISANO

Gary: Yeah. I agree. I think it can be more challenging, and I think the work of my late colleague, Clay Christensen, really bore upon this. He highlighted this issue around why companies were vulnerable. Disruption, was really, as he described it, was business model disruption. That’s why I call that ‘the business model disruption’. He was really the one who identified that phenomenon where it’s the business model change that companies can’t react to. And I think he had some things to say about that, which I think are still very relevant. For example, when you’re missing certain segments of the market, or certain segments of your customer base are defecting and don’t seem profitable, and you say, “Well, we don’t need them anyway.” That’s always a little warning sign that he mentions that when you’ve got customers that, I think he would describe it as you ‘fire those customers’, you say, “Well, we don’t need you. We have more profitable customers.” That can be the beginning of a vicious circle. I think you’re seeing some of this in some areas today. Again, the example I use in the book is with shaving, and I mentioned Gillette competing against players like Harry’s and Dollar Shave Club. I mean, they’re offering a different value proposition and I think, initially, the folks like Dollar Shave Club and Harry’s, they were viewed as “Yeah, they’re just taking the customers who are less profitable for us anyway, so who cares?” But then, it starts to grow and then it starts to become a bigger segment of the market. It’s not that it happens really fast. It’s actually the opposite. It happens really slow. Until it doesn’t. So, it’s like the boiling frog, which is, we start losing a few customers, we’re like, “Oh, I don’t even notice that.” So, I think you do need to track fairly carefully what’s happening with customers, but also, who are the customers you’re not addressing? And are there segments of the market that you’ve never thought about addressing, that might actually be quite attractive to others, serving them in a very, very different way.

[00:21:55.13] Ben: When you see that you’re kind of suffering from that kind of Clayton Christensen’s type disruptive innovation, you know, where somebody’s come from underneath, almost in your blind spot and then starts to take market share, then the natural conclusion is, you eat your own lunch or you cannibalize your own business just before the new competitor can? But, another section of the book I really, really liked was the one where you challenged that notion that is always best to eat your own lunch. And I found myself when I was reading, thinking, okay, I’ve also been guilty of this many times, and lazily thought that, okay, it’s always best to cannibalize your own business. Why is it not always a good idea to do that?

Gary: So, one of the problems with cliches like that is they grossly oversimplify in ways that can really blind us. And so, there’s really two reasons why I think that advice doesn’t always hold up. So, one is, these things, these disruptions — whether they’re business model disruptions or radical changes in a technology base that make your technology obsolete — they tend to look a lot more obvious in retrospect than they did in prospect. So, the advice of ‘eat your own lunch before anyone else’ assumes you have some foresight that most of us don’t have. And so, there’s lots of examples where companies have abandoned technologies that had a lot of room to grow and they committed the opposite error. IBM was being told in the ’80s, “Get out of mainframe computers.” Well, mainframe computers today process 90% of the world’s transaction, and they are the workhorse now if we’re talking about big data and AI. It’s all mainframes. You need a lot of big iron to do that. IBM has that. So, it’s a good thing they didn’t get out of that market. The market isn’t what it was relative to the ’60s, it isn’t what it was, then to now. I mean, relatively speaking, it’s smaller, but it’s still a good market. I mean, it’s still a very big market, and it may get bigger. In fact, it’s very likely to get bigger. So, a trouble I have with that is it gets you out of thinking about hedging your technology risk.

Gary: But then, the second thing — and it’s more troubling — is that even if you do that perfect foresight and something’s happening, there are often profound implications for profitability. There’s this assumption in the ‘eat your own lunch’ argument that the new thing that comes along is somehow got to be more profitable or as profitable. And there’s no law of economics that said that, there’s no theory in economics that said that, there’s no empirical evidence. That’s not necessarily true. So, an example I gave in the book is when digital photography came along. Digital photography hasn’t been profitable for anybody. I mean, it’s just been a bloodbath because the components are commodities, they’re out there, anybody can get them, they’re modular technologies — and it’s a bloodbath. And so, if you were Kodak and you had perfect foresight, it’s still not clear to me what you would have done to say, “Let’s get out of our really lucrative film business, to dive into this market, which is going to be a bloodbath.” So, sometimes you really are stuck between a rock and a hard place. And what I try to offer in the book is just some ways to think through those contingencies. So, you know, there are some times where the technology’s changing, or the business model is changing, but it’s going to be good for you anyway, so you might as well embrace it. Sometimes, that’s eating your own lunch to get an even better dinner, right? I mean, that’s just a better future. But sometimes it’s the opposite. Sometimes the technology is changing, or the business model is changing in ways that are just not going to be profitable for anybody. It’s a lot more complex than just, “Let’s just dive right into the new thing and eat our own lunch.”

[00:25:42.20] Ben: Do you think it’s really dangerous when CEOs kind of consult futurists? I don’t know what the record of futurists is, in terms of being able to successfully predict the future, but I guess it’s small, and yet nonetheless, you see a proliferation of these people. And so, is that one of the things you advise, to just avoid futurists?

Gary: Yeah. I mean I think I sort of say that in the book, I take a real shot at futurists because they tend to look back to all the time. And the bias of somebody who’s a futurist is to tell you how the world’s going to be different. You’re not going to hire a futurist to tell you the world is going to be the same. So, in some sense, you’re getting a biased view. By bringing in a futurist, you’re basically pretty sure going to be told the world’s going to change. The world always changes. So, I think that’s true. I mean, we know that. The world will be different tomorrow than it is today and it’ll be a lot more different further out in the future than it will be just tomorrow.

startup life is consumed with the fear that you’re going out of business because you’re generally running on fumes, in terms of resources and cash. And so, you are focused on one goal — surviving. And the people you attract to the enterprise are extremely comfortable with the ambiguity that they may not be in business the next year. So, you select people who are very comfortable with that calculus. If you’re in a major corporation, if you’re in Microsoft, with 20 plus billion dollars of cash on the balance sheet, you’re not going anywhere next year. That, I think, changes some of the tension and pressure. And you cannot replicate that in a large company. — Gary PISANO

Gary: I think you should listen to people who have interesting and provocative things to say about the future. Absolutely. Because they may stimulate your thinking in ways that you hadn’t before. So, actually, let me walk that back a bit before every futurist sends me nasty emails. There are so many folks that I’ve interacted with, that are very, very, very smart. And they do have provocative things to say. I don’t necessarily think they’re right. And I don’t think the value of what they have to say is in the prediction. So, if they say something’s going to be the case with electric vehicles, I don’t bet on what their vision of the future is. But listen to what they have to say, as a way just to challenge your own thinking about what the future might hold. And I do think it’s a helpful exercise for organizations and people to constantly be thinking about that and disciplining yourself, because you’re trying to prepare and it’s not that you can predict correctly — most of the time we get things wrong — but we can start to prepare ourselves and understand where the contingencies are, and what we might do today to prepare ourselves.

Gary: For example, right now, all businesses and universities and schools are going through this. We don’t know it’s a short-term thing, but what’s the COVID situation going to be like in the fall? Should we be online? We don’t know. So, the best thing you can do if you have the resources is, prepare, create options, build flexibility, because it’s going to have a high payoff. Choosing one or the other now, when there’s uncertainty, is not a good investment. Investing in flexibility when uncertainty is high is a really good idea. So, that’s where I think it’s helpful to be listening to futurists and others, and challenging yourself and listening to scientists. And I guess, I’d have to say my bias is more to listen to people who are content experts rather than futurists. Talk to customers. Farmers could probably tell you a lot about what’s going on in the farming world. They live it. And so, go talk to them, go watch them, go watch how people live. And again, it doesn’t hurt to start to imagine some futures as a way to stimulate your thinking, but just be careful to not confuse that with a prediction or a scenario.

[00:28:56.23] Ben: Up until now, we’ve talked mostly about putting in place an innovation strategy. What you say is there’s three parts to innovation, right? The first one is the innovation strategy and then the second part is the innovation system. What is an innovation system? And how does that support an innovation strategy?

Gary: Yeah. The system is really the way you start to execute. That is really, at a very simple level, your innovation system is how you search for ideas, how you combine ideas — what I call ‘synthesize’ — and how you select. So, it’s really, how do you go from ideas, find the ideas, digest the ideas, and pick the ideas to go forward with. So, it’s really internal because sometimes you’re involving lots of external people in it, but the system provides the capabilities to execute that strategy.

[00:29:43.19] Ben: Is the key to finding great ideas this, what you call in the book, ‘intellectual arbitrage’, or surrounding yourself and maximizing the number of inputs to every decision?

Gary: What I meant by intellectual arbitrage is just exposing yourself to ideas and people who you don’t normally get exposed to. We tend to talk to people and the experts in our particular business without thinking about what others from very different fields might have to say. And they have different ways to look at the problem and that can stimulate really interesting ideas. And sometimes they’re technology ideas. So, we see things move across fields all the time in terms of technology, but sometimes it’s business model ideas. An interesting one I just came across most recently in some new research I’m doing is, during World War Two, during wartime production in the US, car companies, which knew how to do things with mass production, but did not know much about making airplanes, were actually asked to make airplanes — B-29 bombers. Aircraft companies who knew quite a bit about making planes but didn’t know anything about mass production actually learned a ton from the auto companies about mass production. So, in the 1930s, airplanes were not produced with mass production techniques, at all. I mean, some of them didn’t even have interchangeable parts.

Gary: And so, it’s a great example of learning across sectors. They were kind of forced into it, in this sort of artificial setting, but, in that case, the aircraft companies learned from automobile companies a lot about production techniques. I think those examples are out there in all sorts of settings. We see today in healthcare, for a while, there were healthcare companies trying to learn from manufacturing companies; hospitals trying to learn about quality procedures from companies who manufacture cars. And, again, one has to be careful because analogies break down, sometimes. They’re not always perfect. But there is learning. And so, the idea is, can you expose yourself and expose your organization to a broader and richer mix of people?

Gary: Now, you mentioned lots of input into the decisions. The only thing there to be careful about is you don’t want to paralyze yourself either. So, I’m a big fan of having lots of input into decisions, but you need a decision-maker to make the call and move forward. But I think, in terms of exposing yourself and getting ideas on the palate of the organization or on the radar screen, I think most organizations need to broaden where they look and who they talk to. I’ll take a good example from my own world, in education. I think we have a lot to learn from companies in the entertainment business who produce fantastic multimedia content. We need to learn more about that. We don’t talk enough to people in Hollywood or the movie industry about that — how to tell a story. Maybe cases become more like that, they may become what we write down. We don’t normally think about that as a party we would talk to. But I certainly know that in my own experience as an academic, just the interactions I have with people outside — I’m trained as an economist and I work in a business school — but interactions with physicists interactions with people who do artificial intelligence, scientists or biologists. That’s where I suddenly get interesting ideas that connect back to my own field. So, it can be very, very stimulating.

[00:33:20.29] Ben: What you’re saying is that, if not maximize the number of inputs, at least you want to be exposed to different fields and different disciplines? And, at the same time, you make the point in the book that innovation is very infrequently linear, right? It goes perfectly from problem identification to solution. How does one build a system when the process is a bit random?

Gary: Yeah. So, the outcome is randomness, but the approach itself has to be very disciplined. And I use the analogy of evolution in life forms. Evolution, as a process, produces a massive variety of outcomes. It’s very innovative. We get everything from the smallest Amoeba to the largest Sequoia trees, to humans — complex forms of life. And yet, if you think about evolution, it’s a very rigorous process. It just works the same way all the time. There’s a few sets of letters in the genetic alphabet and there’s some rules for how things combine and replicate. And there’s not actually a lot of variance in the process, but there’s a huge variance in the outcome. And I use that analogy to think about, in organizations and in innovation, we want variance in the outcome, we want the breakthroughs. But to do that, we need to have a very disciplined and rigorous and repeatable process of design — test — iterate — design — test — iterate — design — test — iterate over and over and over again. And you need organizations that have not just that mindset, but you actually need processes to do that. So I think that sometimes gets forgotten. People feel like that’s bureaucratic, but it’s actually not. And when you look at how really great scientists work, they work with very strict discipline and rules. And it’s the same with artists, they work with really strict discipline and rules that they follow. The outcomes vary, and there’s creativity in the outcomes, but they’re often exceedingly rigorous and exceedingly disciplined and regimented in their approach.

[00:35:27.10] Ben: I’m not suggesting there’s an inconsistency, but on the one hand, you suggest in the book that you can’t just take a large bureaucratic organization, break it into smaller parts, and then to quote you, “it becomes magically endowed with entrepreneurial spirit.” That’s a fallacy, right? But, at the same time, you say, to do innovation, you need self-structures, you need temporary teams, you need project teams. So, what’s the difference between decomposing an organization into small parts and running project teams or small teams?

Gary: Yeah. Again, nothing wrong with small teams. I like small teams and you can do them in big companies. But I think the point I was trying to make in the book was that many times, companies confuse what is a cultural problem for a structural issue. So, they say, “We’re bureaucratic, and we’re slow, so let’s break this down. Let’s attack it structurally. Let’s make these smaller units. And now, suddenly, we’re going to be like a startup.” And the answer is, no, you’re not. You’re just going to be smaller versions of your old bureaucratic self. It’s actually hard to recognize what you can’t replicate about a startup. So, startup life — and I’ve been involved with startups, I’ve been a co-founder of a company, I’ve served on the boards of startups — startup life is consumed with the fear that you’re going out of business because you’re generally running on fumes, in terms of resources and cash. And so, you are focused on one goal — surviving. And the people you attract to the enterprise are extremely comfortable with the ambiguity that they may not be in business the next year. So, you select people who are very comfortable with that calculus. If you’re in a major corporation, if you’re in Microsoft, with 20 plus billion dollars of cash on the balance sheet, you’re not going anywhere next year. That, I think, changes some of the tension and pressure. And you cannot replicate that in a large company.

everybody loves the discipline until that discipline is applied to them — Gary PISANO

Gary: If you’re a large company, let’s think about what it is you really think make startups innovative — those are the things you can borrow. Create a sense of urgency. We’ve seen that in large companies. Today it’s fascinating what’s going on there. Big companies are being forced to be very urgent, because their worlds got changed dramatically. Look, I come from an academic institution that’s… Well, it’s a University — Harvard University is 350 years old or something and Harvard Business School is 100 years old — and we had to go online in a two-week period. Our students were on spring break and when the University president said because of COVID we could not have classes in-person, it would be risky and irresponsible. And so, in two weeks we had to figure out how to deliver education online. I think, if you had said to me last year, could that happen in a two-week period? I would have said no. But it had to happen. So, we made it happen. That’s the sense of urgency you can get. So, in a big company, you can do it. And we’ve been seeing this happen. So that’s what I encourage companies to do is, forget the whole startup thing; focus on the key attributes of innovative cultures — and those are some of them.

[00:38:23.12] Ben: When you talk about culture in the book, you talk about the paradoxes of innovative culture. One of the quotes you say is, “When it comes to innovation, the candid organization will outperform the nice one every time.” I suppose the question here is, how do you stop candor becoming aggression?

Gary: Yeah, great question! And absolutely you have to do. I mean, you have to watch for it. If you’re the senior leader, this is where you have to just be really attuned and you have to watch the visual cues — it’s a little harder these days if you’re remote — you’ve got to be able to, if you’re in the room, watch the body language of how people are reacting and be prepared to step in. And you have to model it yourself, that delicate balance of treating people with incredible respect and dignity but being very clear about what you think is a good idea, what’s working, what’s not working, how things can be improved. It is a delicate balance, and in an organization where people are passionate — which is what we want them to be — emotions get involved. And we know that emotion can get the best of us, at times, in a negative way. So, I think, as a leader, you have to be really comfortable with stepping in and being able to pull somebody aside and say, “Look, Ben, you were a little rough in that meeting. I get your point, but you might have ventured into, you were just brutal, not brutally candid, which is different. We’ve had the good argument, we’ve thrashed this problem out 100 different ways, and now we’re going to move forward and we’re still connected.” I think you have to build good personal relations between people in the company.

[00:40:14.07] Ben: So you need obviously candor with respect but if you don’t have the candor, then you’re just going to move too slow, because you’re going to be too nice and you’re not going to get to the point, and the whole pace of change will be too slow. Is that it?

Gary: Absolutely! And problem-solving requires candor. It’s, how do we make this better? You have to tell me what’s wrong with my idea. If I give you a book of mine, to read my next book, I give you the manuscript and you say, “Great job! Great job!” Yeah, you just don’t want to hurt my feelings. But that’s not going to help me. But if you say, “Look, I’ve got to be frank with you. Here’s three points in the book that don’t make sense at all” or “I don’t understand” or “They’re badly written” or, “They don’t add anything”, whatever. And you are clear about it. I might not want to hear that. In fact, I’m pretty sure I wouldn’t want to hear that. But the only chance I’d stand to make the book better is actually hearing that. That’s why candor is so critical to innovation. For any creative process, and particularly for innovation, it’s extraordinarily important!

[00:41:14.07] Ben: There’s another great quote I loved from the book, where you say, “An organization chart gives you a pretty good idea of the structural flatness of a company, but reveals little of its cultural flatness.”

Gary: Yeah.

[00:41:24.25] Ben: How do you lever this culturally flat organization?

Gary: That’s where the leader’s behavior is everything. What are their expectations of you and others and their role and how much autonomy they really give you? So, in some organizations, leaders make it clear that they want to be involved in every decision. So, I don’t care what the org chart looks like, it’s not flat. And they’re going to get involved with every detail, and people are going to learn and be conditioned over time that ‘you’d better ask the boss before you do anything’. In other organizations, the leaders say, “Look, here’s the direction I want to go on. I think I’ve made it pretty clear the general direction or the principle or the strategy. It’s really up to you how you do that. And it’s really, within broad latitude, I just want you to go forward. And if you need my counsel, I’m absolutely willing to provide you that counsel and help you, but don’t feel you have to ask my permission.” So there’s clear boundaries about where you have to ask permission and not. “I trust you.” It’s trusting people to make decisions, and then giving them feedback on those decisions, later.

[00:42:27.22] Ben: Two other paradoxes I wanted to pick up on. One is this idea of, you call it ‘tolerance for failure, but no tolerance for incompetence’. If you’re going to do experiments, you have to be allowing competent people to do them, right?

Gary: Organizations that are innovative have really high standards of people. So they draw a distinction between, something failed because biology got the best of us or physics got the best of us or the market. We tried something new. They draw a distinction between that and just, we were sloppy. We did a bad design. We did bad engineering. I didn’t motivate my team well. I didn’t listen to people who were giving me an impact. That’s incompetence. We’re not going to tolerate that. Innovation is hard enough. And that’s a harder edge. Everybody loves tolerance for failure but when organizations start talking about, look, we’re also not going to tolerate incompetence, that’s a scarier environment to be in, for a lot of people.

[00:43:28.13] Ben: You also talk about how there’s a given that experimentation is good, but you argue very strongly that, if you’re going to experiment, those experiments need to be bounded by a sense of what they’re going to teach you and how much you can afford to lose through those experiments, right?

Gary: So, it’s, what are we experimenting? Why are we doing this? And then, we’re going to generate data. We have to treat the data as sacred. We can’t just run an experiment, look at the data, and say, “Well, that’s not what we wanted. Let’s do this. Let’s keep doing it.” You have to ask yourself, if you’re getting results that you didn’t expect or that are less than optimal, why is that? What’s going on? And learn from it. And that’s the discipline. And I think there’s got to be a real discipline to experimentation. And everybody, again, loves the discipline until that discipline is applied to them.

[00:44:19.11] Ben: One of the things you said in the book is, as a leader, you have to be great at strategy, execution, and culture. And what I wanted to ask you was, how many people does that apply to? And then, do you think that kind of leadership only really comes in waves? I don’t know if you have ever read that Steve Blank article where he sort of says, you get one wave where somebody is great at innovation, and they surround themselves by people who are great at execution, and then when that person retires, or leaves, then you have a period where the company kind of sweats the asset or milks the existing innovations. And then, there’s not until the next generation of leaders that you then become innovative again. So, sorry to ask such a long question, but do you think it’s really difficult to have those qualities in a leader? And do you think they come in waves?

Gary: I agree with that observation. I do think they come in cycles. I think what happens is you do get the visionary leader, the innovative leader, who then surrounds themselves with people who are execution-oriented to kind of counterbalance them, which is probably a reasonable thing to do. But then, the problem is those people become the heads of the company, and there’s less innovation. And then, the company gets in some trouble and an innovative leader comes back. I think Microsoft’s a great example. I mean, I think they’ve gone through that cycle. How many leaders are good at strategy, systems, and innovation? It’s a great question! Probably very few. I think, as a leader, your task is three-fold: you’ve got to master strategy, you’ve got to be a good architect of the system, and you’ve got to be a good architect of the culture. But if they had to choose, I’d say, focus on strategy and focus on culture. Systems — there’s enough other people who can probably help you get that right. So, focus on strategy and focus on culture.

[00:46:06.16] Ben: We’re in a world now, where, the pace of change is constantly accelerating, we’re on a treadmill. And sustaining innovation is kind of like the new source of sustainable competitive advantage. Do you think that’s fair? I.e., this is really what makes or breaks companies today, and therefore, the leaders that are good at this kind of almost deserve to be paid whatever they’re paid, because this is just so critical?

Gary: Well, I want to be clear, because in terms of sustaining innovation means — and Clay Christensen used that term, ‘disruptive versus sustaining’. I’m not talking about sustaining innovation the way he did it. Sustaining your capacity for innovation is critical. I mean, that is what is really, I think, the skill that is in scarce supply. So, it’s not just being good at innovation. It’s building an organization that is capable of innovation. I think that’s the fundamental difference. The leaders should worry about building the organization that’s going to outlast them.

[00:46:57.09] Ben: So, the way you finish the book is you talk about innovation as agency, right? So, we all have a role to play in innovation. Is there a way for us to become, as individuals, in a practical sense, for us to become better at innovation and also to make our businesses more innovative?

Gary: Yeah, absolutely! Look, innovation starts with yourself and organizations want us to be innovative. I’m not innovative, but I want other people to be so. So, you kind of have to open it yourself, for sure. But I think, how do you do it individually, and in all walks of life? I go back to some of the things I talked about in the book: expose yourself to a wide range of people and ideas. So, get out of your comfort zone, get yourself in contact with people you’re not normally talking to. I think that’s probably the most important thing. The second thing is, get comfortable yourself with experimenting. And I think we’re all trying things and learning from them as an individual skill — getting comfortable with that I think it’s a prerequisite for having your organization be comfortable with that.

Gary: There’s lots of these things individually, you can practice. I mean, you can practice candor and learn how to do that, and challenge yourself to start to follow some of those cultural attributes. Get yourself comfortable with receiving candid feedback and not taking it too personally when your ideas are criticized. Learn how to do that. And again, I think some of it is, get yourself in situations where, if you’re outside your comfort zone in something you’re doing individually, that you’re not going to be very good at, and that you’re going to fail at it, and you’re going to learn that humility that comes from it — I took a drawing class two years ago. I’m a terrible artist, but my wife is an artist. So, she was taking me to a drawing class, and I took it, and I failed a lot at it, but that’s okay. I mean, I think it’s no fun to fail, but you have to realize that failing at things isn’t so bad — and innovating requires that. So, if you get comfortable with some of that yourself, you’ll become a more innovative person in everything you do. I think that, in an organization, you will be a better agent for innovation.

Ben: Fantastic! Gary, thank you so much for coming on the podcast and sharing all of your insights from your book! Just to reiterate, Gary’s book is called Creative Construction: The DNA of Sustained Innovation — and we highly recommend it!

Jumping S-Curves and Inventing the Future (#16)

Structural Shifts with Bill FISCHER, professor of Innovation Management at IMD Business School and Ian Charles STEWART, co-founder of WIRED.

How reliable will strategy be in the future? What if tactics were more important than strategy? Are firms obsolete? What about nation states? Can the future of companies be a model for the future of countries? How is the nature of competitive advantage changing? How are we redefining quality to meet the needs of consumers and the marketplace? In this episode, Ben Robinson is in conversation with Bill Fischer and Ian Stewart from the International Institute for Management Development — IMD. Bill is Professor of Innovation Management and Ian — who you may remember from a previous episode of this podcast — he co-founded WiReD and he is Executive in Residence at IMD. 

Innovation should describe the characteristics of the way we work. It should be about how we do things, rather than what we’ve done at any particular time, or who’s doing it. — Bill Fischer

 

[00:01:51.29] Ben: We are at IMD to interview Bill Fischer, and Ian Stewart is here to make sure I get the very best out of this podcast. So, it’s going to be a joint interview and more of a conversation than anything. Starting with teams — is team a noun or is a verb?

Bill: It’s a verb. Without a doubt! Incidentally, thank you for coming over here and thank you for inviting us to be part of this. This is great fun!

Ben: I always forget to say that. So yeah, thank you for coming on the podcast!

Bill: So, I think, when we talk about innovation, the idea is, no matter what part of innovation we’re talking about, to make it a verb, not a noun. A noun describes somebody else doing it, some of the other departments, and I think that it’s too important as a quality of life — organizational life, individual life — to be pigeonholed in somebody’s group. So, I think it’s a verb. Amy Edmondson at the Harvard Business School talks about teaming rather than teams, and I think that’s a good way to begin.

Ben: And the reason you think it’s a verb, rather than a noun, is because it can never be passive — the formation of a team, the building of the team, the management of the team.

Bill: No, I think that innovation should describe the characteristics of the way we work. It should be about how we do things, rather than what we’ve done at any particular time, or who’s doing it. I think we want everybody, ideally, to think of themselves as potentially involved in the innovation process, so it shouldn’t belong to any department or group or section or what have you. I think we ought to characterize a way of working that involves curiosity, autonomy and the ability to experiment.

[00:03:45.15] Ben: I imagine Ian had the same experience that I have. You know, sometimes you have teams that just gel and they perform amazingly well; other times, you think you put together a similar composition of skills and it just doesn’t gel. So, what is the key to team performance and the composition of team, in your experience?

Bill: So, I think teams are too casually regarded. My sense is that teams should be fit for purpose. And if you think about industry development — I know we’ll talk about industry and arenas later — if you think about industry development as an S curve, then in the middle of the S curve where you know what you’re doing, and you know how to do it, then I think teams ought to be run in one way — probably harmonious and people get together and they gel quickly and they know each other. But, when you’re trying to jump from one S curve to another, when you’re trying to invent the future, then I think teams have to be very different. And I often think that contentious teams, teams that are staffed with people who know a lot of stuff and who disagree with one another, it’s probably the better way to go.

Ben: Yeah. And you take aim at what you call “polite teams.”

Bill: Right. Polite teams get polite results. Yeah.

Ben: Yeah! It’s almost like the antithesis of polite teams — teams that are combative.

Bill: Yes, but not destructive. I mean, I think they have to be led differently. I often think of teams in the middle of an S curve being led by an orchestra conductor who stands there and everybody knows what they’re doing and his or her job is to keep the movement going in the right direction and the right speed. But crossing the S curve is more like a boxing referee: allowing contentious discussion — because I want to get every brain cell I can possibly get — allowing contentious challenge to take place without being corrosive or destructive.

[00:05:55.16] Ben: You cite the research that shows there’s an inverse correlation between the size of teams and their performance, which I think, intuitively, feels great. And also, it’s unbelievable how much research went into that report that you cited. But that, then, poses the question of, if you’re going to run a large organization, how do you avoid having large teams and thinking in terms of large teams?

Bill: Yeah, so, just to be clear, the research you were talking about was a piece of work done by three fellows from Northwestern University last year — it appeared in Nature, I think, or Science.

Ben: Nature I think.

Bill: And it’s an amazing piece of research! Wonderful data, large data sets — a really spectacular piece of work. But it’s about invention, not about innovation, and I think that’s important to clarify; it’s at the very front end of the change process. For me, the thing that was so interesting in their results was that at some team size over five, every person you bring in reduces monotonically the level of novelty and the expected outcome. That’s extraordinary! I mean, the more people, the more conservative we become. In fact, they have some interesting data that argues that it’s a functional way that larger teams work, and also, the expectations that larger teams are going to deliver different results, and so people are responding to the audience as well. What clearly comes out of that is that if you have your preference, if you’re able to do it, smaller teams are better than larger teams, and they have more autonomy as well. So, I think that rule #1 about thinking about teaming is, how small can I do this, and can it be, and how autonomous can we fashion this?

Ian: Interestingly, I found the same thing on boards, with the same parallel thoughts. The less change an organization is going through — whether it’s for-profit or non-profit — the more it can afford large boards, the more it’s involved in something which requires substantial change. I’m on the board of an NGO at the moment, which is seeing its funding sources around the world radically change as governments fund less, and private sector sources, foundations, family offices are funding more in this particular area, and they have zero experience in this space. So, trying to understand how to change the fundraising process, changing actually the management team to enable them to do it has been a struggle, and what I often find on these things is that the first thing that a good chairman does is break things down to smaller groups so that there’s only three to five people handling it. So, there was a small group of us that went out to hire the new CEO, there was another small group that had to restructure how funding works. It’s a very interesting process. I think it’s exactly the same on boards as it is in innovation teams within companies.

Bill: I’ve come away over the last couple of years thinking that end-to-end responsibility, smallness, and autonomy are really critically important characteristics for teaming. Contextually, when you want to do something big, if we want to run the day-to-day operations of an activity in a mature industry, then those rules may not apply at all.

[00:09:34.29] Ben: Yeah. So, we’re going to come back to talk about whether the structure of a firm is still as relevant as it was because the very notion of a firm is building these high-transaction costs. So, we’ll come back to that. But, if the future, if optimal performance is achieved through very small teams, does that mean that organizations just become a composite of lots and lots of small teams, then? And how easy is that to actually orchestrate?

Bill: So, I have a long-term relationship with Haier — the Chinese appliance company — and that’s the direction they’re going in. They’re going in that direction because their industry is on the verge of a major upheaval around hyper-connectivity in the kitchen, and they’ve never done this before. They’ve never produced content. They used to talk to their customer typically once every 15 years; now it’s five or 10 times a day. So, they need to be really different, and what they understand, I think, is that there’s so much opportunity to do different things, but they’ve never done this before. So, what they’re doing is they are subdividing into small groups that are autonomous, that are self-investing as well, which reduces the risk to the organization as a whole, and they’re allowing people to take chances. And I think the belief is, “We’re going to be in the right place at the right time not because we’re smarter, but because we’re taking more chances — and most of the chances aren’t going to turn out well, but a couple will, and then we’ll be uniquely positioned to move forward.”

[00:11:25.17] Ben: So, I just want to drop anchor on Haier, because I’ve been to Drucker Forum and you’ve brought them there in the past, and it’s a fascinating case study, but I think there’s several things I’m interested about, one of which is, how replicable is that in other examples of companies that are doing the same thing? But the first thing is, how do they manage consistency with that level of autonomy? Because we’re talking about home appliances, so these are not things that you would want to be breaking every day. How do they manage that?

Bill: These small teams are located on platforms that are overseen by people who are more internally focused than externally focused — so the small teams are completely externally focused. But then, that behavior in activity is mediated by the role of the platform, which is sort of a bridge between the external and the internal world and does the translation. So, that, to me is the way they go about consistency. And, on that platform, they have a number of stakeholders involved, so you’re all using the same connectivity systems, so that you’re not doing one thing. One of the interesting things about this is that all of a sudden, logistics becomes a much more important player in the conversations than they did in the past, and that is because you’re no longer buying separate pieces of home appliances, but you’re applying a suite of home appliances to talk to one another. You’re spending a lot more money, and when you walk in that kitchen as a customer, you want to push the button and everything works, which means it has got to be all delivered on time as well. So I mean, you’re seeing very different internal players participating, as well as somewhat bizarre external players.

Ian: In answering the first part of your question, Ben, I think depends on the size of the organization and the dynamism of the environment in which it works. If there’s a great deal of change going on, or a great deal of change necessary and/or there’s a level of disruption because of changes in the way either the context of the business is formed or the competitors in the environment, I think that level of change requires structures and systems that allow for it. If you’re dealing with something that is relatively static — and that’s less and less true these days; all of the indications are that the lifecycle of companies is dropping — but if you’re dealing in a sector which is relatively static, then you can afford to build a deep process, which fine-tunes, which eliminates, which molds down to a point where it’s as efficient as it can be to run one set of processes. Now, something like that — and I’m thinking of large Japanese companies, for example — doesn’t react to change terribly well, isn’t able to adjust, isn’t able to innovate. But, if you’re in an industry that doesn’t have that level of disruption yet, because they probably all will at some point, then I think it’s okay to have an order type of structure. But I think it’s very clear that the trends on company lifecycles, and industry lifecycles, and the level of change that’s taking place through the application of technology in all sorts of different levels in different companies, in all parts of the value chain, suggests that some level of management, of innovation plus reliance on core processes I think, is inevitable.

[00:14:43.13] Ben: Yeah, a tension between the exploitation tap and the exploration tap, which is, as you said, depending on where you are on the S curve, which one is taking precedence. Just going back to Haier, you talked about the rising importance of logistics and the platform that underpins it. I suppose another case study is Amazon, right? We have this idea of API first, so even the internal teams interface with other internal teams through APIs, which actually makes it possible then for those internal units to be exposed to external parties — a bit like AWS was. Is that how Haier is built? Which is, you can quickly change the interface from internal to external, the same way as if you wanted to plug out a Haier appliance, you could plug in another appliance because they have to be built on a platform that allows interoperability.

Bill: I think, actually, what happens is by creating autonomous work units to the extent that they are at least responsible for their own functions, everyone has a line of sight to the customer and as a result, they take what’s going on in the marketplace much more seriously than they might have — buried under levels of bureaucracy and really don’t see the customer at all.

[00:16:09.11] Ben: I think I’ve been to the Drucker Forum twice, maybe three times, and each year, you bring Haier back to speak. They’re great! It’s a phenomenal story, and it’s so innovative in its business model. But, the fact that you bring them back and you don’t bring other examples back is that because there aren’t that many examples, still? They’re still trailblazing?

Bill: There are a fair number of organizations that are experimenting with change, but I have not yet seen any organization that’s gone as far as Haier, for as long a period of time — this is about a 35-year continuous story, with 70,000 people. And yet, there are plenty of organizations that are really experimenting in different ways with autonomy, but not on that scale, not for that long, and I think not that comprehensively.

Ian: It’d be interesting to take a closer look at Alphabet and Amazon — they’ve not been going at it for anywhere near as long. That’s the impressive thing with Hire — the longevity of the process is really quite something. But clearly, Alphabet and Amazon, in their own ways, have approached the same problem in parallel ways, trying to work out how to be continually innovative, whilst maintaining the core business and trying to build a set of internal processes that keep it feeling and acting and operating as a single entity, a single corporation whilst creating these new services and businesses. I mean, it’s a fun area! It’s a really, really fun area! My favorite bit of business at the moment is this frontier between trying to run something and trying to build something because they’re not always the same thing.

Bill: And the boundaries between these organizations blur because, where’s your focus and where’s your allegiance and where’s the center of activity occurring? And that’s interesting. The other thing that I have always been fascinated by, at Haier, and it’s probably because I had gotten to know the chairman Zhang Ruimin so well, but he talks a lot about giving up control — not amassing control, but giving up control — because that’s the only way the organization can move responsibly fast enough; that’s interesting, to watch an organization trust its people to get on with their job.

[00:18:35.04] Ben: In terms of lessons learned, one of the fascinating things is, home appliances, this is quite a capital intensive business, and so, I can get how you can devolve down autonomy for decision-making because you want the individual units to be quite responsive to changing customer demands, but how do you devolve down capital allocation on that scale?

Bill: That’s a big problem! And it means, probably — and I’m watching some organizations try to deal with that — it means that the sizes of these organizations are arguably going to be much larger than the small groups that are interacting on the frontier of client-facing type. But it doesn’t mean you can’t do it, it doesn’t mean that a group of people can’t run a large-asset, intensive operation within a manufacturing framework or run the manufacturing framework itself. I mean, that can be done — it’s a different size, and it’s a different degree of involvement engagement.

Ian: I think it’s also a different approach to risk. If one’s trying to allocate capital in areas that are less well-known by the existing management team… I mean, I spend my time these days often going backwards and forwards between French organizations and American organizations or whether they’re Canadian or US, and there’s a very different approach to a decision about whether to invest in either a process or a new technology. The French companies — and forgive me for French listeners, if I’m generalizing to a point that is offensive — French companies tend to go more into the reports, and details, and they want to be absolutely certain if they possibly can before they make the decision. The American companies want to be sure or more or less triangulate that this is the direction, and then they’ll throw money and people at it and see what happens. And I think that that different approach, the ability to take on investments with higher risk and less certainty, I think is fundamental to very large organizations being able to allocate capital to their internal operation. So, I’ve spent time, obviously, as an investor, as a venture capitalist, and I think that some of those attitudes, some of those approaches to being comfortable with risk and trying to judge what are the levels of risk you’re willing to accept — is it more the team? Is it more the tech? Is it more the goal? Are the processes involved appropriate, given whatever the context is for what they’re trying to do? And then deciding, “Okay, $150 million goes on this” based on less information than some companies might be willing to accept. I think that’s essential for this type of change at this type of scale in large organizations trying to stay relevant.

[00:21:13.06] Ben: So is that what will determine the winners in the future? Which is, if we think about the changing nature of competitive advantage, is that ability to deploy capital better and faster or will they be disrupted by companies that are more modular and more networked?

Bill: So here we get into the difference between industries and arenas.

Ben: Yes.

Bill: As a preface, I would say, if you reflect on the way we think about strategic thinking, it’s based on industry analysis — Michael Porter’s five forces, and things like that. Industries are asset-defined. So, all automobile companies pretty much look alike and all banks pretty much look alike and they all have the same assets and the same talent, but there’s a couple of things going on now, I think, that are really changing that. One is that we’re no longer as interested in the asset-defined rivalries as we are in the outcomes, the customer experience. So, for 100 years, when we think about strategy, we’ve been thinking about the inputs. And now, we’re thinking more about the outputs. I think that’s a function of a business model innovation, and the ability of a whole generation of entrepreneurs who have decided that they don’t have to have those assets, they don’t have to have those engineers; they can go out and play in the customer experience game and access the assets and talent that they need some other way. And they’ll differentiate themselves on something within the business model that everybody’s been aware of, for a long time, but nobody else has taken on. And so, I think that the nature of the way we categorize firms is changing.

[00:23:08.29] Ben: And so, is the right way to categorize firms as aggregators, and platforms, and long-tail, then? Is that the way to think about it? So they’re either aggregating the work of other companies and their consumer-facing, or they’re sharing network effects across their platform where they’re not necessarily customer-facing, but they are sharing between all the different tenants of the platform, or are they the long-tail suppliers to the platform?

Bill: So, we start outside-in rather than inside-out, and we start with the customer experience, and then, we think about all of the different ways that we can affect that customer experience or change the customer experience. At the present time — and I don’t know if this is because it’s in the middle or at the beginning of this transition or it’ll always be this way — there are still some assets-specific providers who do everything and well-known brands who are participating in the arenas — as Rita McGrath calls it — that characterize the creation of customer experience, but there are also some aggregators and some modular assemblers. I guess those would be aggregators who are doing the same thing with a completely different balance sheet in terms of the way in which they go to market. While I’m saying this, I’m thinking that we’ve seen modularization around for a long time. It’s not new. The missing piece, I think, has been the business model, which has really tied it together. So, Alex Osterwalder who lives just a short distance from here, really deserves a lot of credit for reminding us, calling our attention on the fact that the business model is really an important way to think about innovation, and we lost sight of that somewhere along the line, I think.

Ben: Yeah, I think the business model is the most important thing to get right. We’ll come in a second to the discussion of strategy versus innovation, but I think business model trumps both because if you get the business model right, then it allows you to innovate at scale and it allows you to execute the strategy. So, I would argue, the business model is now more important than ever has been.

Ian: I think it also depends on where you are in the value chain for an industry — or an arena, for that matter — and where your skills and competitive advantage lie. Even in the car industry, where you have a whole bunch of people facing the customer on the B2C side, with variations on a number of different themes — with SUVs dominating these days — at the back end, you’ve still got a very limited number of suppliers of, for example, gearboxes, where a few companies really dominate. They do one thing really, really well, then they customize it to the different customers, but, essentially, there are very few companies supplying to a great many B2C-facing car companies and car brands. So, I think it depends a little bit on where you are and where you sit in the system.

Ian: I wanted to address another question you asked very early on about whether Haier and its development of platforms facilitates interoperability. I think there’s a big difference between the platforms that a company creates for itself, for its own innovation, and for its range of products and services. Bill mentioned if you start to buy from a company which has its own system — and of course, we know Apple in the space, not with washing machines, but yes, with consumer objects — it becomes very hard to leave after a while because the system works very well in amongst the different objects and tools and machines that they sell. The same will be true, I’m sure, at Haier, but I’m sure, as with Apple — I’d love to hear from Bill about this — Haier probably doesn’t make great efforts to ensure that their systems interoperate with other competitors in the Chinese marketplace, because that’s a source of competitive advantage. So we see certain benefits of network effect within ecosystems that we control. We don’t necessarily want other people’s devices to be able to interoperate because then we lose our control of the customer. So I think it’s interesting to see what’s happening, and I think there are efforts to create standards to allow IoT systems to interoperate — it’ll be very interesting from a competitive landscape point of view to see how that goes.

Bill: Yeah, I agree. I was trying to think about how that would work, and my sense is that, certainly, Haier does have its own system of connectivity and within the domestic Chinese market, that’s the one that is in use and I think has been probably the market leader. Outside of the Chinese system, the reality is that you have other organizations like Amazon, Google, and Apple who have a head start with their systems — particularly Amazon Echo and the like, because they’ve been around for a longer time. So, I think it would behoove Haier moving into the domestic North American market to make sure that their equipment works with the standards — how many of these devices do I want to talk to so that they’re a system? What I don’t know, and an interesting question is, would they have a special microenterprise that would take responsibility for that system, or would the existing microenterprise adapt to fit both systems? I don’t know how that works and I don’t know who would make that choice. I think the way the choice will be made is who moves the fastest within Haier?

[00:29:04.20] Ben: I’m really pleased that you raised this, so I think it’s worth delving into this a bit more. Isn’t that notion of switching costs — which is really what you’re talking about, which is, you make things proprietary so that it’s difficult for your suppliers, your customers to switch up — isn’t that a very Industrial Age concept that will gradually disappear? Because the nature of competitive advantage is changing. I mean, you’ve said everything has to be customer-first, ecosystem first, such that the most successful companies will be those that generate the highest level of network effects and those that externalize those network effects with their ecosystem, such that the idea of introducing heavy switching costs is almost the antithesis of how you increasingly create and sustain competitive advantage?

Bill: If I can just make a quick observation: I used to do a lot of work in the telecom industry, and I remember how major telecom companies would be afraid to become the dumb pipe. Nobody wanted to be the dumb pipe. I now hear automobile companies say that because in autonomous drive vehicles, if the audio connectivity is done through an existing system like Amazon or like Google or whoever, then who actually owns the customer? And if I have an Amazon Echo on in my home, and I then go out into my garage, do I really want to change systems? And how interoperable do I want to be? So, it’s not in Amazon’s interest to make it easier for anybody.

[00:30:46.05] Ben: But, in a way, isn’t that Canute-like to resist that? Because, almost necessarily, we’ll prefer some channels to other channels, and we won’t want to have different proprietary channels for our car, for our bank, so we’ll probably necessarily move to horizontal channels. Isn’t the trick to make yourself desirable even if you don’t interface directly to the customer — i.e. to be the car that people choose even though they might interface through Echo, the bank that people might choose even though they might interface through WhatsApp?

Ian: I think that’s the crux of a competitive question. If you think that there is going to be the potential for a horizontal network effect, integrated system across multiple brands, then you target that. But, if you think you’re going to add enough value — remember, it’s not about optimum value, it’s about enough value — to your customers to keep them loyal and keep them within your system as much as possible, then the rent you can charge for that, the amount of margin you can generate from that is going to be enough to sustain you for a great many years, even if ultimately you think you’re going to get knocked out, as you say, “Canute against the waves.” I’m not sure. I think this is a classic problem that every company in every industry faces at some point, open or shut, and I don’t think it’s a given that everything’s going to be open. I really don’t.

Bill: So, it’s an interesting exercise of legacy thinking: what’s legacy thinking and what isn’t? And it also calls into question the enduring power of brands. Is there enduring power of brands, or will brands fade, in what Charles Fine would call “fast clock speed industries” where there’s a lot of turnover? Brands that have prospered in slow-change industries would they also prosper in fast? Can you make them do that? And if you can’t, then how fast you move to get out of that constraint? I think those are really interesting questions. So, the way I see platforms working is, if I’m doing a proprietary system that allows my products to be connected, whether they’re home appliances or not, do I encourage another internal microenterprise to try to do ones with a broader set of connectivity — maybe common standards, among others — and see how the market reacts?

[00:33:24.04] Ben: But I think what’s interesting about Haier, is they’ve built an organizational business model, let’s call it that, that allows for very fast innovation. So, arguably, that’s a business model where they can keep up with changing customer expectations. But most companies can’t; I guess they need to insource innovation from other people. And so, I don’t know if Haier can innovate fast enough, particularly as it expands into a larger arena. But, isn’t that the question: How your need for the work of others depends on how fast your own market moves? And, to talk about something else that you mentioned, you think this is sort of the New Age of Edison. Are there slow-moving industries anymore? I mean, you could argue that electricity was a slow-moving industry, but that’s undergoing massive change, right? So, what is a slow moving-industry and can anybody afford not to adopt an ecosystem model?

Bill: So, I think there are industries that wish they were slow. But my sense is, if you say there are no slow-moving industries anymore — which I don’t think we’re there yet, but I think we’re in the not-too-distant future — and we’re moving into unknown areas of rivalry where we have broad arenas with many different types of approaches, I think that strategy no longer becomes reliable, dependable.

Ben: Not enough time!

Bill: And that strategy becomes the ex-post rationalization of successful or unsuccessful tactics.

Ian: As it sometimes already is.

Ben: Every successful entrepreneur post rationalizes the story of the firm and the fact that everything was pre-planned and not down to luck.

Ian: And every country writes its own history. You’d only have to compare the English, the British, and the Chinese histories of certain parts of Southeast Asia to see.

Bill: What if we managed as if tactics were more important than strategy? I think that, in a sense, we’re doing that.

Ian: I agree.

Bill: I think Haier certainly uses it. And I think that changes the way in which we approach things. To go back to teaming, if we take a look at the last hundred years of industrial history, most organizations, and most generations of managers have remained on the same S curve. And now, all of a sudden, we have this acceleration of change. For me, the most important piece of that is that the ruptures between S curves become a larger part of my managerial career — and in those ruptures, I have to act differently. So, if I move quickly from a world where strategy was worthwhile because I had a long expectation of harvesting that strategy, to a point where I have to continually move from one S curve to another, I think I need to act differently. And every one of those S curves is the unknown, it’s no longer the uncertain, right? Strategy is the province of the uncertain. We sort of know the way the game is played, we know who our customers are, we know who our rivals are, we know how to do this. But if I’m going into the unknown, if I’m going to brand new industries and brand new customer experiences, then all that decision-making becomes unreliable.

Ben: Yeah.

Ian: There’s not much point in having a three-year or five-year strategy plan if you have to adjust it every 18 or 12 months.

Bill: Right!

Ben: Or three months.

Bill: Yeah. I had dinner a couple of years ago with Tim Brown from IDEO, and he said one of the things that is changing in his business — which is the design business — is that they’re losing the middle of projects. So, they have beginnings and ends but there’s less and less time in the middle to do things because of customer pressure and time to market. That changes the way in which you do everything about a project.

[00:37:32.10] Ben: So, taking that same idea of losing the middle, is that now what’s happening to strategy, which is bifurcating between, on the one hand, setting the company vision and mission and trying to manage the company culture, to put in place the right business model — which is just stuff that doesn’t change very often — versus the polar opposite, which is, the rest of the strategy is introducing as few constraints as possible and allowing the company to be as innovative as possible?

Bill: Oh, yes! So, my view is that change is continuous and accelerating, but in corporate life, organizational life, is episodic and remains episodic — so they’re always going to be out of sync. The problem is, how do we speed up the nature of organizational life, so that it’s more in tune with the change in the outside world? And this is not unique. Another lesson from Haier is we have to resist linearity and sequentiality in the way in which we work.

Ian: This is a parenthesis, which takes us out to a different field, but I would argue the same is true for country governance as it is for corporate governance. I think a country like China, that still does five-year plans, struggles when things change very, very quickly in large ways.

[00:38:57.19] Ben: How repeatable a process can innovation be? I mean, you wrote a book called “Idea Hunter”.

Bill: It’s a great book!

Ben: It’s a great book and it cannot be simplified in a simple line, but this idea that there is a formula for continually coming up with good ideas, which by extension means that the same company or the same individual could continue to be innovative.

[00:39:46.25] Bill: Right! Design Thinking, Lean startup — things of this nature — are procedural, and I think what they are is procedural in a way that reduces the linearity in the innovation process. So, the old innovation funnel, right? The old innovation funnel was completely inside out — it was all about our numbers rather than the customer experience. It was completely inside out, was completely linear in the way in which the stage-gating processes worked. And, for me, the biggest cost was that learning took place at the end. And what I think we’re doing with Lean Startup and Design Thinking, and the variants thereof, is we’re trying to move to a slightly less linear process where we do more testing along the way, pretotyping, prototyping, and so, the learning is moved forward. We don’t have to wait until the end of the experiment. So, my sense is that, in the face of increased unknowns — which is the shorter S curves, more ruptures between — we are moving to a more experimental model of decision-making, and that experimental model involves much more testing, faster testing, and quicker learning — and then, the application of that, as we go along, but it’s still a process.

[00:41:08.00] Ben: Recently, we interviewed Marc Gruber, for the podcast, and his argument is that the toolset that you’re referring to — Design Thinking, Lean startup — is missing one tool, which is the where-to-play framework. Do you also agree that it’s really important, ex-ante, to decide where you’re going to play?

Bill: So I think prototyping is, can we do pretotyping? Does anyone care if we do it?

Ben: What’s that term?

Bill: Pretotype. It’s the minimal viable representation of the idea tested in a marketplace. So, it’s an attempt to try to see if anyone cares about this and, in a sense, that’s some insights into whether or not there’s a market for this, whether we should be playing in this space. And the beauty of pretotyping or prototyping is that it gives you better feedback because you’re talking about something tangible, rather than something abstract. So, my sense is that all of these things, moving from abstraction to tangibility — quick testing and all that — are attempts to reduce the impact of legacy, linearity, and sequentiality.

Ian: I have this worry sometimes, as we lose the middle, as we’re constantly working on customer value innovation, and we’re constantly trying to catch up with production to meet those new expectations of our customers, whether that lack of middle and lack of longevity of process reduces quality and reduces the longevity of the product and the service.

[00:42:55.20] Ben: There is a clear trend in place where customers don’t want mass-produced products; they want things that are more locally-sourced, higher quality. Almost like the end of the end-consumer brings with it the end of the mass-produced customers.

Bill: I don’t see any reason inherent in that process where quality should be reduced. It’s not as if we’re doing it in a half-baked fashion. We’re still trying to build the right quality but the interesting thing that comes out of this is that, what if the customer decides the quality is not an important issue in their purchase decision? What if, in fact, the quality that we’re producing is unnecessary?

Ian: The best example is in fashion. Fast-fashion over the last 15 years, people have been happy to have things that fall apart in three months because then they get something new because it costs them nothing.

Bill: Yes! Yes! Actually, I spoke with a firm that makes fast-fashion and whose largest market is in the city, in London, because they have wealthy, well-paid typically men who have no domestic skills, who buy a shirt once and throw it away, because it’s so affordable. So, I think that we have a definition of quality, a legacy definition of quality that needs to be re-examined. Listen, I’m not advocating bad quality.

Ben: Fast throwing away shirts after single-use.

Bill: What I am advocating is rethinking the nature of quality and what’s required. We see a movement away from long-term — particularly in North America — two-year MBA programs to shorter MBA programs. Is that a reduction in quality? We don’t think so. We think that we’re redefining the nature of this experience, in many ways. And you see a growing rise in certificate programs. I think that quality, like anything else, is constantly up for redefinition.

[00:45:17.15] Ben: I’m so pleased you brought up the topic of MBAs because, in a world where innovation matters more than strategy and where experimentation matters more than knowledge, is it worth people taking two years of their life to study in a classroom?

Bill: I don’t know what the right time period is, but I’m a great believer that knowing more is better than knowing less.

Ian: It makes sense to me.

Ben: Even if you continually write in your articles that the experimentation trumps knowledge?

Ian: Experimentation also leads to knowledge.

Ben: Touché!

Bill: Yes! So, last year, I took 95 MBAs to Shenzhen — a colleague and I did — and it was a great experience! We spent five days there. It was about learning, not knowing. So, I think more and more of education is about how do you engender the curiosity to seek things out? And then, how do you learn? What do you do to learn more? Because going back to the rapidity of change in the S curves, in the future, what you know will be less valuable than how you learn.

[00:46:35.22] Ben: And is that what you are increasingly teaching that — how to learn?

Bill: Yes, I think so. I think what we’re providing is frameworks and vocabularies that make it easier to learn and make it easier to share learning — scalable learning — but I think that more and more those frameworks have change at the center, rather than stability at the center.

[00:47:00.02] Ben: So, I’m looking around at your bookshelf here. We’re in Bill’s office, and as you can imagine, you would expect of a professor’s office to be full of books. I’m just trying to count how many of these books have the word “firm” in them. And my question to you is, is the firm still a relevant concept or is it obsolete? Because the firm was all about grouping people under one entity because transaction costs were high and because it was about systemizing production — so you needed to organize work into repeatable tasks, with formal hierarchies — and everything we’ve talked about so far suggests that every notion I just mentioned there, is obsolete. So, is the firm obsolete?

Bill: That’s a good question!

Ben: You’re going to have to throw many books if it is.

Bill: I think in the spirit of how we started this conversation, organizing is not obsolete. Teaming is not obsolete. The construct of a firm may, in fact, need to be re-examined. Earlier you talked about how we think about organizational size and how that’s changing, and I think that’s really true — and that’s probably true in the nature of the firm as well: the motivation for the firm, the corporate nature that tends to be associated instinctively with the firm. All of those things probably need to be rethought and redefined and re-examined, questioned, but I’m not sure that organizing itself is a bad idea.

[00:48:37.01] Ben: So, we’ve nearly got to the point where we delved into the Chinese question — we’ve constantly held ourselves back, but I think we’re ready now. But maybe let’s start through the prism of the idea of the nation state, which is, if the firm needs radical overhaul, does the nation state require the same?

Bill: Ian?

Ian: So, I guess, referring back to my earlier comment about the difficulty of having five-year plans in a world that changes every three to 12 months, I think the general answer is yes, to a degree. I think a lot of the things that still glue people together — culture, attitude, and history — remain and will remain important. I think what’s interesting, today, is that the nature of citizens’ relationship to their country is changing, and it depends on where they are. I’ve said in public before that I think that the relationship between capital cities of a lot of the world, certainly Western nations, but including places like Beijing and Tokyo, less so Jakarta, bear more resemblance to each other. These places bear more resemblance to each other often than they do to their own hinterlands, and I think, therefore, that the term nation state is interesting because I think there’s a difference between how large capital cities, large busy cities, whether they’re officially the capital or not, are very, very different to the countryside from whence they came. You only have to look at the Swiss referendums to see how different the voting is between cantons in the center of the country and the cantons that touch the outside world. But also, if you look at the voting for Brexit, if you look at the voting for many major cultural and/or country changes over the last 10 years — I think of the US, as well as the UK, but also Venezuela and Brazil, and elsewhere — we have a dichotomy taking place. We have a dichotomy appearing very strongly between big cities and the rest of the country. So, I think that’s one dynamics which requires change in governance with the countries concerned, but it’s also about the relations between countries across the board. I haven’t been for a long time a big fan of things like the United Nations, but the purpose of the original League of Nations made sense. I wonder now, within the context of the changes that are taking place inside countries, whether we need better relationships across countries.

[00:51:00.00] Ben: If Haier is the future of the firm — large autonomous independent units that are brought together through logistics and data — is that the future of countries? Because, in some ways, in Switzerland, the model for a modern country because that’s really what Switzerland seems to do quite well, which is this thin federal layer that kind of coordinates activities, and then a lot of power and responsibility and autonomy devolve down to communes — and if that’s the case, it would seem we’re moving in the opposite direction: states become more insular and I don’t know. That’s just as a thought. If the Haier corporate model is the model for nation states, how does that play out on a global scale?

Bill: You know, it’s hard for me to answer this question. When I was much younger, I thought that the nation state would fade and that multinational corporations would become — I mean that was 100 years ago — multinational corporations would become the real powers that move the world, but they failed. They failed because of inefficiency, they failed because of greed, they failed, because they did not take the interests of everyone into account.

Ian: I wonder if it’s changing with a move to stakeholder focus rather than shareholder but yes, I agree with you.

Bill: Great! And I certainly don’t see any change coming out of Silicon Valley with these new-age sorts of organizations. The biggest problem I think that we have, in so many countries, is the income disparity that exists and the inability for some people to have futures. So, what I do think is interesting in the example of Haier, is that, first of all, they trust the people — and I think Switzerland does that as well with the way in which the voting takes place on everything. So, there’s a great deal of trust in people to be effective participants in a political process, and there’s a very clear focus on what they want to achieve. And there’s been 35 years of consistent trust in the workforce and a belief in the talent of the people there. I think that over time, what that’s done is that has led to the ability of people to advance their own situations. People who normally would have been in a traditional organization, would have been on the margins of society because they lacked the educational credentials or because they lacked the connections. The ability to be autonomous and to start things on a small investment has allowed smart, hardworking people to succeed. So that’s a good outcome.

Ian: I’m generally a great believer in the notion that smaller is better for structures, not just in times of innovation, but also because of the nature of the way people treat each other in small structures versus big structures. I think smaller structures are healthier in interpersonal relationships, whether they’re in organizations or societies. I’m going to take a twist on your question, Ben. I am not sure that there is an optimum model visible yet for country governance because I think it’s context-related. In the same way, I think that the optimal model for company governance is also context-related partly speed, partly size, partly environment. I think I’m going to twist it and say that my faith, both looking at history and looking around me — but I’m slightly biased in this because as someone who starts companies, I believe in the power of the individual — I’m going to say that I think it depends a great deal on leadership. Just because one country has a leader that people are unhappy with, it doesn’t mean the structure of the country or the systems within it are wrong.

Ian: Similarly, I think because a country is successful, I think one has to look terribly closely at who’s driving the success currently, to understand whether it’s the individuals that are within that structure that are making something unwieldy work, or is it the structure itself, which is predisposed towards producing good leadership and therefore good results. I’m more a believer in good leadership, whether it’s corporate environments or in-country governance, than I am in the structures because I’ve seen bad structures work and I’ve seen good structures fail, both in corporates and in countries. So, I care a great deal about leadership. One of the reasons I spend so much time at the school, one of the reasons that I like coming back here and something I very much enjoyed about my time when I was here was, it’s about leadership, it’s about creating good, global, citizen leaders. I think that’s crucial. I think I wouldn’t put my faith in structures; I would put my faith in individuals.

Bill: I agree with that. I think that we need to look at the role of people to be able to play a leadership role, not only at the top of the organization but throughout the organization. And my sense is that when we work with organizations who aspire to be like Haier, one of the problems we run into almost always is that they’re unprepared to give autonomy to their people, and the people are unprepared to accept the autonomy if it’s given to them — and that’s largely because the perception is that leadership doesn’t take place throughout the organization. And I think what I’ve learned from Zhang Ruimin is he says, “We’re an organization of leaders.” These people are all running small businesses, some of which are not so small, many of which are quite successful, and that needs to be reinforced. And then, I go back to the IDEO example, and one of the things Dave Kelly used to say was his job as CEO, as the leader, was to reinforce the confidence of the people in the organization to make the right decisions.

Ian: But I think you’re also reinforcing my point about the fact that if you don’t have a leader like that, it’s not going to happen in the organization.

Bill: That’s right!

Ian: It is important for the leader to be aware that they need leadership at all levels of the organization.

Bill: So, if we go back to the broader innovation question, for me, I’m a big believer in top-down leadership. Not dictatorial, not oppressive, but if you don’t have strong top-down leaders, then you cannot allow bottom-up to occur because the leaders become intimidated or threatened by the suggestions. So, you need people at the top who are secure in their own confidence and who are enthusiasts for autonomy. And so, that’s going to determine how organization boundaries get set and how they operate.

[00:58:24.28] Ben: Is that how you would define the leadership in China?

Bill: Well, that’s a very different level of complexity. It’s a political leadership. I don’t think that’s the role of political leadership in any country that I know of.

Ben: But leadership at a country level is just as important, isn’t it?

Bill: Oh, yeah, I think so, too.

Ian: I think Bill’s referring to the systems underneath. The complexity of politics in any country is such that you can’t necessarily assume that everybody is united on a particular goal or vision because there are many visions and many goals — you have competing parties, you have competing people within parties, you have systems within the systems, you have autonomous bits that fight with each other. It’s not so easy.

Ben: This is what business people that become politicians always underestimate, isn’t it?

Bill: Yeah, right.

Ian: Absolutely! I think there are certain types of people who run businesses, who have the capacity for this openness and this ability to deal with complexity underneath them that might survive in that environment. But it was the reason why not to have generals running countries, too. If you’re used to a certain type of hierarchy and an assumption about how the orders would flow down and follow what was required by the top, then that doesn’t work in almost any political system that I’m aware of.

[00:59:47.15] Ben: Other than the fact that you both work at IMD, another thing that unites you both is that you lived for a long period in China and you witnessed the economic miracle that has taken place over the last 30–40 years. Is the economic miracle stalling? And if so, why?

Bill: So, I think there are some structural issues that everybody has known about for a long time — it starts with the demographics of the country. You have an aging population. I think that that’s not going to go away in the short run. I also think that you have an economy that was built originally — the modern economy — starting in 1979–1980, built with an export orientation. It’s harder to build a domestic market. It takes more time and the like, than anyone thought. It’s happening now, but it’s been a while. And the other thing is, if you build an export-oriented economy, you sort of hope that your customers are going to grow — and the rest of the world is not growing either. So, I think that there are important what I would call, structural and demographic reasons for the present slump.

Ian: To add to that, there’s also a natural cycle. They’ve gone through an extraordinary expansion with all the funding coming in from overseas and the growth in population and the extraordinary improvements internally to allow both. I’m not going to say the defeat of poverty, but there was a huge reduction in the number of people surviving on very little. So, I think the governance of the country is in a place that’s so large and so complex — it has been really quite extraordinary over many years — but we’re now at a cycle stage in their own cycle, where there are other things to be sorted out — a slightly less capital available, there are concerns overseas in terms of how the country is perceived. Internally, there are questions about the way the country is governed, the way that certain decisions are made, which partly happens when things slow down and there isn’t this sense that everybody can do fine and it doesn’t matter what the government’s doing, because we’re all going to be better off than we were before. I think all of these things lead to a natural slowdown. I don’t think it’s something I would worry about from a global perspective. There is the issue of the internal debt problem and the possibility that the non-performing loans in some of the larger regional banks are never actually going to be paid back because the developments have been made. But I think those are structural issues, which again, people are aware of, both in China and abroad.

Bill: And it is not the first time.

Ian: And it’s not the first time. And actually, if you look at history, their history is a lot better than, say, Argentina, so I’m not worried yet about China.

Bill: I first moved to China in 1980, I’ve been there every year since. If you look at China through that period of time, what has happened today would have been unimaginable in 1980. Absolutely unimaginable!

Ben: Quite extraordinary!

Bill: Right! And so, I think one of the great headlines of the late 20th century, early 21st century, but certainly late 20th century was the movement of China, the development of China into a modern nation state. And modern nation state, I don’t think it could have happened if it was just individual provinces working in an autonomous fashion. So, I think they needed that galvanizing force. Since the onset of the One-Child Family Policy in 1980, you could forecast that there was going to be a plateauing of growth in the economy, due to the reduction of people consuming and producing age. We’re there now. I have also learned never to underestimate what the Chinese people can do, and my sense is that China will come out of this fine, I think. I would not short China in any point.

[01:03:45.24] Ben: Do you think China is ready to overtake the US?

Bill: I don’t think that’s important. First of all, what numbers are we going to use? We could argue it forever. I think the fact is that China has modernized to a point where it’s a global, geopolitical, economic, technological power. And I think that’s the accomplishment.

[01:04:04.27] Ben: But in a way, the US — and you could argue whether this is a trend that will be sustained — right now is becoming more insular. It’s not rejected globalization, but is retreating from international organizations, they’re retreating from globalization. Does that mean that China steps in and becomes a global superpower? Because you said, it doesn’t matter. But if that mattered.

Bill: I think China is a global superpower.

Ben: Preeminent. Voilà!

Ian: Again, it depends on what preeminent means.

Bill: Yeah.

Ian: Hearts and minds versus economy and dollars, I think are very different things.

Ben: Yeah. China is much more interested in the latter, right? The Belt and Road Initiative is about creating markets for exports.

Ian: There’s also a sense of history in the Belt and Road Initiative. There are different things going on there. And again, I don’t think either of us is here, ready to speak for China, but what we can see is a concern at different levels of government for how the company is viewed — even though they pretend it’s not so important — how it builds its own systems internally, how it helps its own people, and logically, so given how recent and massive the changes have been, it’s obviously more concern with ensuring that things are fine within China than without. And so, I haven’t seen any politician attempting to create a global leader role, either as a politician or for the country, because there’s always been this sense that we worry about our problems, we don’t interfere with other people’s problems, we don’t want other people to interfere with our problems. I don’t think there is this wish to have this role of leading global adjudicator over other people’s issues. Yes, perhaps the US did play that role for a while, and yes, elements of US society wish to be less involved in other people’s issues for a while, but I think Bill’s right, I think it’s the wrong question. I think what’s interesting now is to try and work out what the new world looks like with a few large stakeholders, a few smaller stakeholders, and very different ways of measuring impact and influence in the world today, partly because of the difference between network effect and military effect and partly because it is about ideas and concepts as much as it is about the ability to control a seaway.

Bill: I think we’d all be better off if the US and China were in an amicable relationship. Everyone would benefit as a result of that. At the present time, fear is an insidious, corrosive power.

Ian: Often used by politicians.

Bill: Yeah. Often used by politicians and at the moment, at least, in North America, in the US, it’s on the rise. Actually, if you look at the US, the US has never really been a whole-hearted embracer of a global community except for the period between the First World War and recently, so it’s a return, I think, to some of the inherent conservatism of people in the center of the country who are not as cosmopolitan as they probably should be.

[01:07:32.08] Ben: And where does that leave Europe? So, if the Belt and Road Initiative is about creating a stronger economic alliance in Asia, in Africa, United States is a large domestic market and they’re happy to subsist with being themselves and they don’t have somebody difficult neighboring countries to deal with and they’ve got a large domestic market, where does that leave Europe? Where is Europe set in this two-polar world?

Bill: So, I’ve always been enthusiastic about Europe playing a larger role in the world than it is at present. I would like it to be more relevant. I think that it has historically been a source of values and reflection that the other two great powers have not been interested in. But I worry about Europe playing that role because I don’t know where Europe is any longer and I don’t know where it stands. It seems to be perpetually stuck between aspiring to be a great power and not being able to execute.

Ian: One of the strengths of Europe is exactly what causes that issue. It’s not one country, it’s not a superpower, it’s not a nation state, per se. I think it’s one of the charms and values of Europe. I think one of the things that’s great about this part of the world is the multitude of languages, approaches, cultures, and ways of thinking and doing things. I think that’s what creates the richness of Europe, and the richness of the experience of being here. Now, it does make it difficult to make a decision in one place, and it does make it difficult to have a European viewpoint. I’m not 100% sure the world needs it. I like the fact that every now and then you do get a European point of view because there are certain things that many of certainly the Western European states, sometimes less so the Central European states agree on. I think I quite like the variety of discussions that take place about any points that are in Europe. I like that diversity of opinion — I think it’s what is the charm of Europe. I also think that being smaller makes it easy to manage, if you think of the Haier model, this multitude of different approaches to problem-solving and different products that occur.

[01:09:58.16] Ben: Doesn’t that require a thin federal layer? Which is kind of developing as we speak.

Ian: We kind of have a thin federal layer. The question is how thin it gets? I think there are structural issues. There’s the obvious structural issue of having a united currency and a disunited fiscal system. So, I think there are lots of things about Europe that don’t make sense, in the way it’s structured. And also, there are different goals from different European leaders, and it changes when the leaders change, about what Europe should be. The vision from the 1950s was relatively loose. The vision from some, now, macro-leaders amongst them is the United States of Europe, and not everybody shares that view — some of the newer members, even less than some of the older members. So, I think there are structural issues that make it very unlikely that Europe becomes this single voice, single cultural place that some people would like, but I don’t think that’s a bad thing. I quite like the diversity.

[01:10:51.05 Ben: But the problem with Europe, I guess, is, in the absence of having these new Digital Age giant businesses, it’s a risk of becoming a tourist destination for Chinese people over time?

Ian: It is a tourist destination for Chinese people.

Ben: But that is being the only engine of growth.

Bill: Incidentally, I think that’s not a bad thing because I think that we all…

Ben: It’s not that is a bad thing, but it’s difficult to find nations that rely solely on tourism that are really prosperous.

Bill: I think one of the things we talked about needing to expose people in the center of America with what’s going on in the world around them. We also need to expose people in every country to what’s going on around them.

Ian: Yeah. Everybody should travel!

Bill: And I think that the fact that we have a lot of tourists coming from China today is a victory. It’s a huge achievement! You would never have thought of that when the reforms began, so it’s a sign of success. I think that Europe plays or could play an important role in moderating the excesses of the other superpowers, and I think that that would be a healthy outcome, in particular at the moment with what’s going on in the US. I think that there needs to be a broader view of how we work together.

[01:12:20.10] Ben: So, I’m going to attempt badly to summarize some of the things we’ve talked about. So, team size matters — smaller teams, in general, perform better than larger teams for many reasons under certain contexts. Definitely, the nature of competition is changing much more to arenas than industries; innovation is rising in importance vis-a-vis strategy, and innovation can be a repeatable process. Business models matter so much more than they did in the past. China is at a point where it’s slowing down, but, as you said, you can never underestimate it and it will necessarily start to exercise greater geopolitical influence. My last question to you, both, is that I think you could argue that we’re at a point in history, which is almost like pre-reformation. I mean, China is almost the equivalent of the discovery of the New World; as a symptom, you’ve got massive change in information flow with the internet and so on. I want you to be bullish for a second and say, what’s positive with the world change from this point on? Starting with you, Ian.

Ian: I’m generally very optimistic. I’m generally very positive. I said, on the previous podcast, that it’s not technologies that create problems; it’s the people who use them and the way they use them. I refuse to be a new Luddite and say that we live in a world where all of these things are scary. I wish Elon Musk wouldn’t keep saying that AI is going to harm us all. I think because of our ability to see more, know more, understand more, I’m totally in agreement with Bill that knowledge is helpful and that experimentation leads to more knowledge. We simply are better able and better equipped than we ever have been to understand complexity and come up with solutions for it. And so, even if individual leadership or geopolitical regional issues or changes in demographics create challenges for both countries and the world as a whole for the next 20 to 50 years, I am totally a believer that we now are better equipped than ever before to face those challenges and come up with solutions. I’m very excited to see what happens. My daughters are now at an age where they’re entering the sphere at 26 and 28 — one is in private equity and one is running her own company — and I love the way they talk and think about the world, and I’m really looking forward to seeing what that generation comes up with. So I am absolutely an optimist.

Bill: I think we’re on the eve of an age where there’s technological revolution, a series of technological revolutions that will change everything — change the way we live, change the way we interact. The level of change will be unprecedented, both because of connectivity and hypermobility and also the genomics revolution. All these things taking place at the same time, I think will provide the potential for huge landscape change. But, what I would hope is that our organizations are up to the challenge and that leadership is able to recognize the opportunities and move fast enough — and this is why the teaming issues that we talked about are so important. And I think that we have to provide opportunities for our entire population, not just the winners of the past economic era. And if we can do that, I think we’ll have unprecedented success. So, I’m bullish.

Ben: Ian, Bill — thank you very much for coming on the podcast!

Bill: Our pleasure! Thank you!

Ian: Thank you for having us!

Startup Success Recipes (#4)

Structural Shifts with James MINERS, serial-entrepreneur and now Senior Advisor at Fongit

Together with James Miners, serial-entrepreneur and now Senior Advisor at Fongit — Switzerland’s premier startup incubator — we explore what it takes to make the journey from scientist to startup founder, transforming ideas into successful mass-market products and what is the key to startup success.

 

  1. Fongit startup support, news & events — https://fongit.ch
  2. Follow Fongit news — https://www.facebook.com/fongit.ch/
  3. Overview of the Swiss startup scene — https://www.startupticker.ch/en/swiss-startup-radar
  4. Swiss startup workshops, coaching, and grants — Innosuisse.ch
  5. Startup Genome Report — Metrics for startup success — https://startupgenome.com/reports
  6. Swiss startup investments — https://www.sictic.ch/report2019/
  7. Swiss startup investments — https://www.startupticker.ch/en/swiss-venture-capital-report
  8. Noam Wasserman — The Founder’s Dilemma

You can follow James on Twitter @JamesHMiners

Ben Robinson (BR): For episode four, we’re in conversation with James Miners. James is an international innovator who has made the journey from science to startup, and now supports fellow innovators, helping them to achieve success. If you’ve wondered what it takes to turn an idea into an successful product, or the keys to startup success, this podcast is for you!

James has founded and grown several companies, transforming scientific inventions into mass produced products. For the last five years, he has focused on building the Swiss startup scene and has supported hundreds of innovators and entrepreneurs. He has also used his innovation techniques to support large companies in generating innovative ideas.

James works at Fongit, which is Switzerland’s premier startup incubator where he manages the coaching and incubation process. He is also an expert for Innosuise — Switzerland’s innovation agency.

James, welcome to a p e r t u r e! Let’s start at the beginning. Your career has gone from science, to technology, to product, to people. Please can you tell us about it.

James Miners (JM): Yes. So as a kid I was always excited about discovering new things and making good new things happen. And so strangely enough, I really wanted to push the boundary of what was known in science. So I ended up doing a PhD with someone who went on to win the Nobel Prize for chemistry. And that was fascinating. The problem that we had at the Max Planck Institute, was people saying, well, what’s the application? It was so far out and you have a lot of ideas, but then the question is which of those are useful in the real world?

So that pushed me to industry and to startups and working with taxis that were powered by hydrogen and stuff like that. And in that role, I was ultimately chief scientist. So working on the technology, going from prototype to mass production, multi-generational roadmaps, and then ultimately in the last one, more on the people side and the COO role.

Ben Robinson: So what was the first startup you did after your PhD?

James Miners: So that was in fuel cells for cars and boats. And my job was to set up the research center for new materials. And with that we were able to go from an idea all the way to scaling it up and seeing it in a fully integrated system. And it was a joy because I was working with people on the Russian space program, the European space program and some of the Americans. So…

Ben Robinson: What happened to that technology?

James Miners: So it’s funny, technology has hype phases and for a while the best investment you can make in the world was in hydrogen fuel cells. And then all of a sudden it’s out of fashion. Luckily… batteries became really hip and it’s very similar technology. So I was able to move from doing these fuel cells for those applications and to small fuel cells for the military in Israel and then ultimately to nano technologies for large batteries that you can see in hybrid and electric vehicles.

Ben Robinson: Okay. And so that was that. So the first startup was where? It was in..?

James Miners: So that was in France. And then we ended up having I think, nine sites and we were on our way to raising a hundred million pounds and 93 million signed up and 9-11 happened. So you can just imagine bankruptcies just rolling across. And there I am… in France, 26 years old… first job in the industry, first job in France, and with a team of brilliant people that come from all over the world to join me and we’re in bankruptcy. And that was my first big crisis of leadership. Everyone can sail a ship when it’s happy days. But I was very proud that I could keep my team together in France and teaming up with the Belgian team. We could actually get refinancing and bring that into the second startup.

Ben Robinson: So there is — I suppose as long as these things turn out at the end, these are good lessons learned, right? If they don’t.

James Miners: I learnt a lot. And the second startup really was great because we could take those ideas that we had in the first one and really ramp them up to mass production and I learned a lot in that process as well.

Ben Robinson: So you went from fuel cells to batteries. You went from France to Israel and what came after that?

James Miners: So I went to visit my parents one day, live in new Lusanne and I’m talking to the neighbor and they said, . So I did. And that’s how the fourth startup got going.

Ben Robinson: So what — I missing one. I think. So you did a startup in France, a startup in Israel. [We had two in France]. Two in France. Okay, Both in fuel cells? [Yes] Okay.

James Miners: So the first one got bought by the second and then…

Ben Robinson: Got it. Okay. Okay. And so that brought you back to Switzerland or the first time you moved to Switzerland?

James Miners: No, that brought me back to Switzerland.

Ben Robinson: Because you grew up here or you grew up in the UK.

James Miners: I was born in France, raised in Holland, educated in the UK and Berlin. And then had two startups in France, one in Israel, the last one back here.

Ben Robinson: Okay. That was again in batteries was it? [Yes] Okay. And what happened to that company?

James Miners: We were bought by Dow Chemical and that was at the time where Obama was giving — was stimulating the car industry and also the renewables. So once I joined Dow I could help launch their energy material business. And that’s amazing when you’re helping a large company innovate and bring new technologies to the market as well.

Ben Robinson: A couple of questions I wanted to ask you. One was why not do another startup… because it seems like you had very much had the bug to keep starting new things and… why not do a fifth?

James Miners: Well, if the right opportunity comes along, but at the moment — there’s always this question, if my why is to help make good new things happen, I can either go deep in one or I can work on a lot of different facets of different startups. And because I was really helped by a lot of mentors throughout my journey, it’s incredibly rewarding to do what I do now and I think I can actually have four times the impact just [Interesting] doing that…

…than just working on one and it’s also suits my personality as well. I think. Yes my grandfather always talking about cricket. I wanted to be a good all-rounder and… on one front you’ve got to show to yourself that you can do the depth. And I think I did that with my PhD and my postdocs and being a COO. But on the whole I’m happier in a more creative role.

I think a lot of people idealize how it is to work in a startup.

Ben Robinson: Yes So when you did startups, you found it got very operational very quickly and less about ideation and…

James Miners: You’ve got to manage that process. I really did go from invention to technology to product and then…

Ben Robinson: Which I guess makes you a much, much better mentor. But what you’re saying is what you like about your existing job is you can — you can have an outsize impact by mentoring people, but also you get to concentrate on these of early stage of startups. Is that right?

James Miners: So I like the early bit, but actually what I enjoy is the diversity of questions you get asked. So today it was the employee share purchase plan for a company. It was managing the coaches at Fongit talking about the dangers of making a video of your product because it can really damage your ability to patent them. You imagine that in my morning today, so your brain is being exercised at all of these different dimensions. I think the real questions get more interesting later.

Ben Robinson: And you don’t miss some of the rush, the adrenaline of running your own company or, and I guess also a lot of reason why people get into doing startups is because of the out sized potential rewards that can come later. You don’t miss that aspect. The adrenaline, the potential to become rich or really rich or…

James Miners: What most people don’t know about my job is Fongit is a business and it’s a fascinating one. We’ve got 60 startups that we’re helping who’ve got 350 are employees. And over the last five years we’ve transformed, this incubator being world-class in the way it operates and the way we coach in our process for going from IDF to a fully funded business plan. We’re seeing more Swiss startups going a lot further.

So there’s this whole business side and I’m part of a pretty amazing team at Fongit which has also grown up a lot in the last five years. So I get the whole running a business side or working within a business at Fongit and then the ability to affect the startups without the huge portfolio focusing of running a startup. I think a lot of people idealize how it is to work in a startup. I got married at the age of 45 or 46 for the first time. I think there’s a reason why it took so long.


Ben Robinson: We’re going to come back to that. So there’s loads of things I want to come back to because I think one of the — one of the things we should discuss is there is a false narrative sometimes around what it takes to be successful and run a startup? [Absolutely] I want to come back to that. I want to talk about Switzerland because through Fongit, I think we can start to see some of the impacts of Fongit and other incubators manifesting themselves in way better scores for Switzerland; way more way more vibrant ecosystem.

So I want to come back to that. I want to talk about Switzerland in Europe. I want to talk about Fongit, but I just want to ask one more question about you before we move on to Fongit, which is… all the companies that you did were focused on energy, batteries, fuel cells. I guess you were motivated by stopping climate change or the circular economy or whatever we might call it. Do you not — is that not a burning sort of passion or mission and do you not miss that aspect of what you were doing?

Fongit was set up by innovators for innovators and that was 28 years ago and that’s what we’re doing today. It’s trying to find the best way to transform ideas and research into products and services that deliver social and economic value.

James Miners: So, yes I do think that if you get a gift, you should use it for good. And I have to say when Copenhagen summit collapsed, that was a really big blow to me personally. So now I genuinely believe that new technology tends to improve the quality of life and particularly if it’s in life science, but in a replacement economy, better products tend to also be cleaner. And so I find what I’m doing now is contributing and as if we now look at the movement from clean-tech to SDGs, there are a lot more different ways that you can contribute.

Ben Robinson: What are SDGs?

James Miners: Sustainable development goals. [Okay, thank you] All 17 of them.

Ben Robinson: And so, well, I think what you’re saying is you, you are very motivated by helping the planet. What you’re saying is you’re still having a contribution. It’s just a bit more indirect than it was.

James Miners: Developing technologies for industry is probably a space that is best played by industry itself. Clean Tech is not an obvious place for startups. If you’ve got to prove that you’ve got a lifetime of 15 years and then you’ve got to finance all of that… that’s a tough path of the market as well.

Ben Robinson: We’re going to move on now. So tell us how you started working at Fongit and what Fongit is?

James Miners: So Fongit is Geneva Foundation for Technology Innovation and the story of startups in Switzerland really started 50 years ago with a tech innovator who tried to set up as a company and it failed. And then two years later tried again with his brother… failed. And the third time it was a charm. It became LEM which is now quoted on the Stock Exchange. It’s in multiple companies. A Real Swiss success story.

Mr. Eta when the company IPO, he decided when to take some of that money and use it to help other tech innovators so that they could avoid some of the silly mistakes that he made at the beginning and they could boost their success. So Fongit was set up by innovators for innovators and that was 28 years ago and that’s what we’re doing today. It’s trying to find the best way to transform ideas and research into products and services that deliver social and economic value.

For us, success is having a company of 15 to 30 employees doing something interesting for 20 years, that’s a contribution. It’s not necessarily interesting if you’re a venture capitalist however. In fact, you might end up pulling the plug on this company that could really be viable.

Ben Robinson: And how long has it been going?

James Miners: 28 and half years. [Wow. Okay] Yes, so it was the first one in Switzerland and the guy was really visionary to set this up.

Ben Robinson: Yes I mean it was way ahead of its time, right? [Yes] Because it seems, at least to me that incubators are really, while they thought they were relatively recent phenomenon. [Yes] And in those 28 years, 28 and a half years, I guess you can point to quite a lot of successful graduates from the program.

James Miners: Yes. So we’ve had sort of 11 exits in the last 10 years or so and they tend to be acquisitions by larger companies. Normally the distributor of the product. That long time frame has allowed us to develop Swiss model of startup success and also enables us to play to our strengths rather than trying to imitate other behaviors. So one of the first things I did when I joined Fongit, was try and look at the Swiss strengths and develop this model for the Swiss startup success as opposed to pretending that you’re in Silicon Valley in America.

So Switzerland tends to do high deep tech innovation that can be patent-protected, B2B, in a niche. And very often you are going to have a much higher success rate, more successes, but fewer unicorns. And a lot of the narrative around the startups is driven by creating products for venture capitalists. But on the whole VCs aren’t actually tremendously present in the Swiss scene.

Ben Robinson: It’s interesting because a lot of people focus on that. A lot of people sort of say that Switzerland, relative to Israel, or the UK or US, whatever per capita doesn’t have that much VC money. And I suppose one way to interpret that is it’s an underdeveloped ecosystem. But the other way might be that it just doesn’t need it because if most of these companies can kind of bootstrap themselves and they had become SMEs and they’re not pursuing moon shots, then maybe it’s just an economy in an ecosystem that doesn’t require as much VC money.

James Miners: Well I think there’s that. And I think there’s also a question in maturity of the ecosystem. So what you feed a teenager is not what you’re going to feel as a school kid. And so the Swiss ecosystem now is in growth phase. And what’s funny is we’re seeing higher average quality and more of them and they’re going further. So now we are starting to see Swiss unicorns popping up. But our approach is to say we want rabbits. So real actual businesses developing interesting technologies. So the idea is you have lots of these baby rabbits, you feed them rabbit food and at some point in puberty they start growing a horn. At which point you can start giving them Unicorn feed and you’re seeing those metrics going.

However, if you treat every startup like a unicorn, you’re going to kill most of them. [Yes] That’s kind of toxic. And our job at Fongit is to help develop successful startups. Now what does success mean? In fact, that’s the first question I want to ask an entrepreneur. Do you want to get rich or are you wanting to remain in control? and you even believe you’re the best person to grow this? Success will be different in both cases. And for us, success is having a company of 15 to 30 employees doing something interesting for 20 years, that’s a contribution is not necessarily interesting if you’re a venture capitalist however. In fact, you might end up pulling the plug on this company that could really be viable.


Ben Robinson: And you have some quite good statistics on this. I think in terms of the average age of a Swiss founder that the rates of growth and — because its — like I think when you look at those statistics, it’s obvious that trying to turn Switzerland in Silicon Valley or even trying to compare Switzerland with Silicon Valley is just the wrong lens through which to look at this ecosystem.

James Miners: Yes! Just play to your strengths, I think. And it may be it took a few foreigners to come to Fongit and say, look, this is what you do. Well, let’s come up with this Swiss culture of startup success and let’s work on that. So, yes…

Ben Robinson: But do you think — coming back to this story of this narrative around startups, right? So the first one — I’m not saying these are necessarily false narratives, right? But one of the first things that people say is if you want to change the world, you need to work for startup. Do you subscribe to that view? Yes or no. Secondly, the way to get rich is to join a startup. Do you subscribe to that view? Yes or no? And then the third thing is, you’ve got a blitz scale run as fast as you can. Do you sort of subscribe to that view. Yes or no? And I think you would — you probably, I guess you can even turn this on its head and say like they start with the objectives of the founder, But if you can even remember what those three questions were, how do you[Crosstalk]

James Miners: So the third one was, it turns out that premature scaling is the biggest harm to start ups. And there’s a lovely report called the Startup Genome Report and they reviewed 20,000 startups a few years ago and they came up with the term  is the most common reason for startups to perform worse. And I understand the dynamics. At some point, you’re on generation three, your investors are all “launch it” — — but all your costs come into marketing there and production there.

So you need to be damn sure before you’re going there. On getting rich. There’s a great book called The Founder’s Dilemma and the fundamental question is; do you want to get rich , bigger pie, smaller slice or do you want to keep control? I asked people that if they don’t want to say I really want to get rich and that’s why it’s clear they want to maintain control.

If you’re in your 20s or 30s, you probably get more money working for a large company or in banking than working in the startups statistically. The average age of a founder in the US is 38 years old; in Switzerland it’s 38 years old. VCs tend to prefer funding younger startups and we love the idea of people just finishing university. But the fact is that, every Swiss startup entrepreneur has finished their university. They don’t drop out.

And a really great way to go about doing a startup is working a large company, really understand the industry and then at some point, whether or not autonomy becomes a bigger driver for you, you’ve got the seed capital, you’ve got enough with a few co-founders to go for one and a half years, then your valuation is much higher. Now you’re going to be less manipulatable by VCs and extra money. And there…

People say startups are taking a leap into the void. No, it isn’t. You go, you get a good coach. It’s an airplane… they ask you where you want to fly, they give you some tips, you take off and you work out all the risks and you manage the hell out of them. And you get a great team and a good advisory board. And yes, sometimes you’re lucky.

Ben Robinson: It feels very much the Swiss way, right, to work in industry for a long time, become a master of the profession and then use that knowledge to kind of make the profession better for a different narrative than, ,you know you leave college and he wants to massively disrupt existing industries.

James Miners: It turns out that in the US the 0.1% fastest growing companies, the average age of their CEOs is 40 and the 0.01% of them, the average age is 45. So it depends which story you want. And when we talk about this question of do you want to get rich or keep control, people say, well… let’s look at Apple, right? He was kicked out and there were three founders and you know two of them. Microsoft, also three founders, you know two of them. So even the examples where someone had it all, they’re not particularly helpful. [Yes] So one of the tough things about my job is you have these outliers, which are very, very interesting, but they don’t necessarily help you dealing with the majority of the people you are coaching.

Ben Robinson: True. And the story of successful companies is told by the people who’ve enjoyed their success and they never place or they never attribute any of the success to luck, right?

James Miners: Yes. Or they say it’s timing, which is luck. So one of the worst moments I had and I promised myself when I was going to be successful, I would not do this, is… you’re there… and there’s a successful entrepreneur. And if it’s a guy, he’s going to say… . And he said, . Well there were three co-founders, but I killed two and  and I’d be sitting there in the audience thinking you have to be a super hero to succeed.

This was tremendously demotivating. Now I understand why I’d say that, but no, most of your life as a startup, you’re not a butterfly. You’re actually a caterpillar. And I think the helpful start up and that narrative is, hey look, these are the stupid things I did but didn’t kill me. And nonetheless, I’ve had a really great time. I’ve learned a lot.

Ben Robinson: What proportion do you think of the stories and how companies were founded and how they initially felt success are either fabricated or kind of retrofitted because it sounds great?

James Miners: So I work with the professor of innovation at IMD called Stewart Reed. And he said, the problem with his area of research is if you’re a good entrepreneur, you’re good at telling stories then you will tell the best stories. So it’s a story. And when I’m coaching people that is finding the most compelling narrative. There are many stories, but which is the best one? And the question is, which is the most helpful to the goal of building a thriving Innovation Nation?

People working together and also more women entrepreneurs. Because also this mantra narrative, it isn’t the truth and it’s not helpful. And so much of this is people say startup is taking a leap into the void. No, it isn’t. You go, you get a good coach. It’s an airplane… they ask you where you want to fly, they give you some tips, you take off and you work out all the risks and you manage the hell of them, out of them. And you get a great team and a good advisory board. And yet, and sometimes you’re lucky. So your third question, I forget what — oh your second…

The best way a large company can get the most value out of a startup and also help that startup is to be their customer. Because the value of a dollar from a customer is 10 times that of an investor.

Ben Robinson: I think we covered everything. Do you need to do a startup to change the world?

James Miners: Yes, in terms of innovation types, you’ve got incremental innovation. 70% of innovation is incremental. That’s fine. Then we’d like to think about the breakthrough, which is an IP, you know… new science. And then of course you’ve got the disruptive, which tends to be not much technical breakthrough, but it’s really market driven. So that might be more entrepreneurial innovation. And of course the ideal is when you get all of those together. So the Swiss model tends to be — it’s existing needs solved better. And then the question is do you want to build that yourself into a sustaining company? Some point you want — why would a large company want to buy that?

Ben Robinson: Good. So I’m pleased you brought us on to the subject of large companies coexisting with small companies because, so you’ve obviously lived this in your experience with your startup and Dow Chemical. And, I guess you also live this through Fongit because I would imagine one of the things you’re doing is trying to find both customers and also innovation partners for the startups that you incubate. How easy is that to do?

James Miners: So that’s the weakest points in Switzerland’s innovation score cards, the collaboration between large companies and small companies and startups. And there’s always this debate, should we invest in a startup? Should we do contract research for a startup? The best way a large company can get the most value out of a startup and also help that startup is to be their customer. Because the value of a dollar from a customer is 10 times that of an investor.

And that means the large company is not only getting something that’s super fresh, they’re really testing it before everyone else and tailoring it to their needs. It’s phenomenal. On the other hand, if they want to invest well, there are people like me that know how to make an awfully good slide deck and the proof is in the pudding. So my recommendation is if you’re a large company and you want to innovate, we know that startups are three times more Capex efficient in developing something than a large company.

Also, startups don’t have any brand risk. If they go test something and it doesn’t work. In fact, it’s remarkable. When I was acquired by Dow Chemical, we had three times the number of people. But if we were sampling in the existing customer, there’d be a debate. What happens if it’s not perfect? Well, it’s still going to be better than what we shipped six months ago. Right? But we’re selling this other stuff and this might hurt our brand. And as a manager, that’s the last thing you want to do. So startups can get customer intimate and iterate so much quicker than a large company.

So it does make a lot of sense for a large company to, particularly if you want to explore different positions in the value chain, can even do it on a different brand powered by this, or acquire a startup at the right stage. And then it’s basically rebranded and you scale.

Ben Robinson: It always seems like it’s a very healthy coexistence because as you said, one has — one company has a brand, a lot of customers, a route to market and the other one has innovation. And so does it always seems like it’s a very, very good symbiotic match when you can match a big company with a small company. But what you’re saying is just become their customer and you steer people away from some of the other things that they do. Like investing in startups like innovation centers and all these things that are less effective, you would argue.

James Miners: So the investing it’s very complex. [It’s not really in the DNA of the company, I mean they’re not specialists…] so the point with the investing is it works well if it’s completely separate. But if it isn’t, then you set it up to do those risks that you wouldn’t normally look at. But then you’re getting analyzed using the normal part of your brain, which says it can never work. So you’re not really de-risking it in that case. And then we haven’t really seen the success that was anticipated from these corporate centers where they would integrate startups.

Ben Robinson: Yes well there’s a big movement isn’t there? To try to learn from startups and where do you stand on sort of intrepreneurs and that movement, maybe I’m putting words in your mouth, but it seems to me that you’re saying one company is good at exploitation, one company’s good at exploration and they should work symbiotically, not try to copy each other or…

It’s one of the funny things that if you’re a consultant or you’re an external person, people listen to you. The moment you’re inside the organization, you’re one of 50,000.

James Miners: Well I do think if a large company is going to know how to value an innovation and not shoot down every new idea… they do need to nurture it internally. And you just asked an interesting question. What can large companies learn from startups? And there was a very smart guy from Nissan who approached us two and a half years ago and he said,  

So we worked with them to get an elevator pitch and an executive summary slide where they could pitch the idea to the committee of VPs in three minutes. We train them in Question and Answer. And then it was do we kill it? Do we adopt it immediately or do we ask for a full slide deck, full slide deck, 12 slides. Also trained them to pitch Q and A, took them three months to do. Again, half of them were adopted; one third maybe killed and another 20% just wanting some extra detail. But it turned out the tools that we’re using in startups are highly effective to help those large companies innovate.

And because, you know, you got to be aware, if you see all of your ideas that you’ve gone in house in the next few days and you kick all of them down, well you’re not going to be around in the next five, 10 years. And what was fascinating from the vision of the CEO… said people are managing really well to a certain level, but if they want to become a VP, they need to know how to invent the future. So they need to run an innovation group or on a project or two for 18 months before getting that promotion because someone in the organization has to build the future.

Ben Robinson: I don’t know — you probably have statistics on this too, but it seems that most innovation that takes place within a corporate comes when that corporate is prepared to do things outside of the body corporate. So set up a new entity or give the power to a group of people to go off and think differently and take risks. And so in the same way it works more when they worked with startups because that’s inherent to the culture of a startup. It seems that you’ve got to try to create that culture and maybe you use a separate vehicle if you want to get that kind of innovation in a corporate. Like does applying the business model canvas or whatever work if you just tried to apply it to the body, like divisions within a large corporate.

James Miners: Yes. You always going to have the innovation wars between building the future and the value delivery engine and all credit to the value delivery engine, they’re paying the bills and incremental innovation works fabulously. Now, if you want to do something very different, particularly changing your position in the value chain, so imagine all of a sudden, let’s say you’re Nissan and you want to explore selling cars to Uber drivers. Just want to have a think about it. Now, you upset all of your fleet vehicle manufacturer, you attack all of your existing… so with this idea, just changing a little bit in the value chain, you can damage 90% of your existing business. So that would be silly.

And on the other hand, if you could spin it off or if there was another startup that was doing it and you could help them a bit where you can explore that without that huge risk. So the other problem is if you make this external innovation center within the large company where these people end up being freaks and when they go and talk to the silver back gorilla is that we’re not in running the production and the core thing, they’re like, you’re a freak. So they lose the ability to convince people inside. And it’s one of the funny things is if you’re a consultant or you’re an external person, people listen to you. The moment you’re inside the organization, you’re one of 50,000.

Ben Robinson: So how many years have you worked for Fongit?

James Miners: It is been five and a half now.

Ben Robinson: Five and a half of the 28 and a half. And in that time I would imagine you’ve had exposure to hundreds, probably thousands of Swiss fintech companies because you probably looked through their applications, you were involved in the selection process, then you’re incubating. So you said there’s 60 startups. Is there an annual intake?

James Miners: Yes. So each year we had about 300 people applying and then we’ll screen those down. We’ll pre incubate about 15 so, they spend three months with us and a coach just seeing… what do they really need? Is there a fit? are we the best people to help them? And then we can move on to the incubation, which — typically you’d say, well we want it to be three years. But sometimes, the really great companies you want to keep sticking around because they’re inspiring the other ones. And particularly for me, coaching becomes scalable where you can say,  and now she becomes an expert because she’s explaining it. So…

Ben Robinson: and those successful companies are also happy to stick around in the program or at least in the building or…?

James Miners: Yes. So some of them get too big and at some point when there were about 30 people, they’ve got enough internal dynamics and unfortunately for us, and we’ve got a rent revenue, but we do feel it’s the moment for them to graduate. But some of them ask us, at pivotal moments, for example, during an M&A can we come back on the board of directors to help them for that? so we’re there and our mission is to help startups maximize their value really.

if it takes a village to bring up a single child, it takes a country to bring up a successful start up

Ben Robinson: Is there a Swiss part to your mission or not?

James Miners: Yes, so we have a few guiding principles. One of them is proximity. And what we noticed is if there’s someone in our building on the way to the photocopy machine that asked me a question, I say, And that’s basically saved them a week. And it’s as good as coaching as you could go and meet for half an hour. So we found that the value of proximity of entrepreneurs talking to entrepreneurs and their teams as well. When you are in R&D and you realize that the head of sales is really annoying. You think it’s your head of sales that’s particularly annoying.

When you see other startups, you’ll realize that jogging with another guy from R&D, it’s just the natural tension that you’re going to have. Those are the kinds of things that are useful from proximity. And then we have two other guiding principles. One is excellence. We’re trying to improve the whole time. And the other one is exceptions because anyone that’s going to be successful has to have a sustainable differentiated value proposition. And we can have our rules… but on the whole, if the evidence is some of our best successful companies will be different and will not be in the natural sweet spot.

Ben Robinson: Are there any downsides of incubating starts? I mean it’s difficult to see them. But one thing sometimes people say is that if you put, if you put sometimes introverted people in an open plan office, then they maybe become less inclined to share ideas and collaborate as kind of the only downside that I’ve heard. But are there any thought of others or if you’re mindful of these things then you take them into account?

James Miners: Yes. So… I’m smiling because when I joined Fongit every year we’d have an event with wine and these little nibbles and ties and the politicians will come and entrepreneurs hate that. So the first thing is…what kind of environment do introverted science geeks like myself like? And what kind of events do they like and how do we create an environment where they can thrive and be celebrated? So it turns out you need a kicker table, turns out that they do like coffee and croissant… that’s sort of our town hall meeting. And you can get the information across and getting the right kind of event and the right mix. That’s a lot of how you get the magic to happen.

But you’re going to need to have some noise canceling headphones. You need to ideally have some quiet zones. You need a variety of different spaces. And so we actually had to change our staffing. So all of a sudden you realize, well if we want to build a community where people interact, well, I’m a physicist, I’m not great at building parties. So we started working with people that had been trained in hotel schools, or business schools. And the moment the person that’s running our space has a background in events and facility management and brings a whole range of different competencies to the ones that we have. But again, not tailoring it to extroverted sales people, but trying to create that environment for Swiss entrepreneurs.

Ben Robinson: Is it competitive? So you said you’re getting 300 applications. It sounds like you’re oversubscribed, but does that — is it becoming harder to attract the best companies and what is the competition? Is it other incubators? Is it WeWork — do you think in those terms or is that…?

James Miners: Someone once said, in Geneva, the problem is not the 100 startups that are supported by the incubators. It’s actually the 20,000 companies that we can’t support. And literally if a company applies to Fongit and they’re based in or around our region or in Switzerland, I will try and find a way in my reply to help them. And most of them won’t come to Fongit. People apply, there may be in social entrepreneurship, well there are other good places for them. There’s the Swiss training. There are other colleagues in different fields.

If they’re in Zurich and they want to do something that is where they can equally well do that. And in Zurich as Geneva. Why move? Why not go to F-10? So it’s strange. We’re a foundation… not for profits. So our job is to try and help these people. And sometimes the best thing to say is, well, go and do this InooSuisse workshop and come back to us.

Ben Robinson: I should have asked this at the very top, but it’s only Swiss companies you incubate, is it?

James Miners: Yes, so you asked that was what I was saying about proximity. You’ve got to be here and be in Geneva.

Ben Robinson: What I was saying in effect is; would ask you to move here at least for the duration of their program. But the, the applicants don’t have to be Swiss. And what — you filtering only for Swiss applicants?

James Miners: No, no, no. So most of our our founders are international and but they have to be based here and live here. That’s the idea because simply we have so much more impact if they are here and you’ve got limited resources and time and you want to have the maximum impact, really.

Ben Robinson: Got It. So they might not be Swiss, it might not be a Swiss company initially, but in order to really take part, you ask them to become Swiss and settle here and base the company here?

James Miners: Yeah, So 90% of Swiss startups or startups in Switzerland are set up within 20 kilometers of where the people live. And in fact, that’s your great advantage as a founder is that — where do I want to live? And giving, you’re taking a big risk on your job. It’s kind of important to be there where you have your friends and families so that when that evening is available and you can go for beers… you can. And I think that was one of the mistakes I made with my first startup going from Berlin where I had my life and all the way to the middle of rural France where I got really good tax break. I wouldn’t recommend that.

Ben Robinson: This question occurred to me based on what you said, which is there is there a problem with a) Swiss geographical mobility. Like is it difficult to get Swiss people to move around? If you’ve got successful startup, how easy is it to attract Swiss people to move from, say, Zurich to Lausanne? And then the other thing is b) how difficult is it to get people from abroad to move to Switzerland because of costs, visas? what one of the reasons might be?

James Miners: So the main aim of an incubator is actually to, to grow what you have and help it to thrive. That turns out that, there are some people that are coming from abroad and have very good reasons for wanting to set up their start up here. But we’ve got an agreement with for example, Vaud, the canton next door, which is before the company set up. It’s fair game. Wherever if we can give them an offer that they really want, or they should come and set up the company here.

Once it’s established, you’re going to pay money to relocate someone, they’re going to lose their network because proximity is important. I know when I moved from having my center, the EPFL where my last startup was and Dow was… to Geneva, I had to rebuild half of my startup network. So I don’t see it there’s much… There’s going to be extremely good reason for moving an existing company.

Ben Robinson: But it’s more question about attracting talent?

James Miners: Switzerland and Geneva is one of the most desirable places to live in the world. And compared to San Francisco, it’s pretty good value for money. But the Swiss, actually the European German model of company growth tends to be… it’s a country of small to mid-sized enterprises, you can have little centers. And then you’ll grow, you might find some talent and grow another center of 30 people there and other talents of 30 people there. But on the whole you’re always keep your headquarters in Switzerland because it makes tax sense and it’s good for IP.

Ben Robinson: Okay, I’m going to get back to the question I was going to ask you earlier, which is, so you were working at Fongit for five and a half years, you see at least 300 startups a year because that’s roughly how many applications you get. So you, more than perhaps anybody else in this country, has a finger on the pulse. And so the question I want to ask you is what’s hot in the Swiss startup scene? What are the early indicators that you see of success? What are the — you think of the best characteristics of successful startups of founders, maybe? Just just share with us some of your insights based on all the startups that you see?

James Miners: Okay. So the first thing is…

Ben Robinson: And do they mainly come out of universities?

James Miners: Yes, so that’s an easy question, right? the first thing is, Yes. Solo founders versus teams. Solo founders take three and a half times longer time — more time to reach scale and two and a half times less likely to pivot. So we know the narrative of the lonely leader on their own. It ain’t true. So the next one is [debunking part of the established narrative right?] Yes. And then it’s always about diverse teams because you want people with (a) if they can get along and work together, but you’ve got different mental models going on as well. So that’s very valent. So balance team tends to have about three times or more user growth.

Ben Robinson: Is there an optimal number?

James Miners: Actually we got a really great start up and I think they had seven co-founders that was — average age was around 40 when they founded … called OB Wise. And they were a spin out of — it was ST Microelectronics and Ericsson, really good team. So we tend to find also early on if it comes to pitching competitions. So teams with a female member will tend to win that… just on the whole we’re seeing women are better in Q and A which is a big part of — [What do you think that is?] On the whole, guys can see questions as a challenge and women on the whole just — thanks for the question and going for it!

And also it’s aspect of differentiation. When you’ve seen five pitches of just one guy and talking about the team and how diverse they are, and then you actually see two people and they’re sharing the, the voice and the Q and A and one of them represents 50% of the purchasing public.It’s kind of more credible.

In terms of trends, our idea at Fongit is very much bottom up. We believe it’s the entrepreneur, the market and the investor that decide. And we enable. So when I heard the word Fintech via London five years ago, I looked around and we had five Fintech, seven fintech companies already at Fongit and no one in Geneva knew that word yet.

So if you know the word, it’s probably too late. So you’ve got to do it bottom up in that approach. But the biggest advantage I have is I get to see teams every day. Do they have lunch together? How are they when they’re not on show? What progress do they make? Because sometimes, and we’ve had to standardize this at Fongit. If you coach a company, put in a hundred hours and another one you got 10 what you’re going to expect? you know 10x improvement in the first case might not be the case.

So that’s my unfair advantage if I’m angel investing… because I get to see it and I do believe or choose to believe that those companies where you have someone that has the positive energy but also the endurance and is part of a team, that’s a really powerful mix.

Ben Robinson: So you think it’s less — so I do want to suggest that it was about technologies. There’s obviously no direct causation between a great technology and a great success. So I wasn’t — the question wasn’t what’s hot and leading to success because I think you’re right. I think it’s many other factors that explain much better than causation. But the question was more what’s hot in Switzerland right now? Is it in the Medtech space? Is there anything in particular that you would highlight as being world beating and quite specific to Switzerland?

James Miners: So in a word it’s Deep tech. So patent protected technologies, that’s our sweet spot. And then of course, yes, Switzerland has a huge life science heritage. A lot of the financing money is going towards that. Of course you combine that with watch making, with med tech and then ICT is growing a lot in terms of the amount invested there and a lot can be said for the fact that now the ecosystem has matured and you’re seeing B2B software or even B2C. And another bit is that now you have some serial entrepreneurs who are working inside angel groups, like SICTIC, to support the next generation. And that’s really powerful when you’ve got people that have done it giving back, investing, and giving appropriate and actionable advice.

Ben Robinson: How does these groups, because there’s this — I agree with you, those groups has seem anecdotally at least to be having a much bigger impact on the ecosystem. So these, the angel investing groups and there are at least three that I can think of right now that have quite big membership and deployed quite a lot of capital. How do you coexist with these types of organizations?

James Miners: So actually we collaborate a lot. And what I love about Switzerland is you’ve got just enough competition to stay world-class. But on the other hand, you’re exchanging best practices. With us, we want to make sure that anyone that we’re allowing to work with our startups is doing this in a benign and positive way. And then how can we collaborate with them? Because we were the first, at the beginning there was nothing. So if someone can do something even as good as us or better, hey, let them do it. And then we could — we can focus in on the other gaps. So we’ve hosted events with the Business Angels Switzerland who we were the first Swiss angel group, then with SICTIC, then with Investiere. And these would be good.

What we normally do is they bring some of their startups, we bring some of our startups, they bring some of their angels, we bring some of the angels in our ecosystem together. And you’ll find that each of these have their own culture. And maybe that will be the place where an angel would think, okay, here’s a group of like-minded people that I can work with. And on the other hand, these are my angels that prefer to do their own thing.

Ben Robinson: So one of the questions I want to ask you again, from the time you’ve been working at Fongit and other companies you’ve seen, which is — are you able to see demonstrable impact of the work you doing?

James Miners: So what we’ve noticed is, if it takes a village to bring up a single child, it takes a country to bring up a successful start up. So really our best startups, you’ll find that they were — the idea was initiated at a pre incubator called Genius. Then they got the venture kick. Then they may have hopped out to Mass Challenge for three months. They’re founded at Fongit. They’re winning the venture.ch prize, you’ve got the Business Angels Switzerland and SICTIC coming in as angels. They’re InnoSuisse coached and that’s classic.

You’re getting the best of all of these components and whether you wanted or not as an incubator, your job as a coach is not being the one source of objective truth, but it’s actually connecting them with the best. The funny thing for me is I think I’m a better coach in fields where I’m not an expert. So I’ve been a better coach in med tech because I connect with more experts in those fields and I’m doing the just plugging the entrepreneur.

And the other important thing is to remember… it’s called entrepreneur. It means she does it, and never try and become a consultant, never make them dependent on you. The three rules of coaching for me is number one, do no harm. And that’s very difficult if you’re coming from a large company because it’s so much of your, what you’re going to advise is actually toxic to start up strategy.

And the second one is do just, just enough so that they still own it, they’re independent. You want to do an upgrade in one specific area, the most vital one that creates the most value in a very short time and then they can carry on running.

And the third rule of coaching, I’m trying to find out…

Ben Robinson: Okay, there’s so much I wanted to follow up on that because, so first of all, do you coach the coaches and do you have professional coaches or are they volunteers? The second question I wanted to ask you was, it’s interesting you said that you think you’re a better coach in fields where you’re not an expert because I’ll give you a short anecdote, which is, I was briefly a mentor at an incubator.

I remember going to a session where startup asked for help on pricing. And it was a B2B Enterprise Support Company asking for help in pricing. And 14 mentors turned up to this meeting, giving — dispensing advice on B2B software pricing. And it was absurd. And at one point I asked, ? None of them had. So what other sort of minimum — like if you could be a better mentor and feels you don’t know much about, what are the minimum criteria you have to meet to be a decent coach. So do you coach the coaches, are they professional and what are the minimums sort of characteristics you think of a coach?

James Miners: Okay. So we have developed a process going from from an idea all the way to a funded business plan. So idea — you have to be able to express that idea, getting the value proposition, minimum viable pitch, written elevator pitch, then the testing it, getting to your 12 slides. We’ve got examples of all of those 12 slides financial templates that are accepted by the market, executive summary and so on.

So we’ve got that process and all of our coaches at Fongit follow that process. They’re all InnoSuisse or Platinum certified coaches. So tech startup coaches and but they get each, everyone gets to use their own tools as long as they deliver this in a certain amount of calendar time and a certain number of billable hours. And because as a coach, if you want to stay fresh and inspired, you’ve got to use new stuff constantly, but within that framework.

My director is Antonio, so he come, did quite a lot in classical music and I’m always thinking about this balance between structure and freedom. And I think that’s important with managing coaches. They’re good musicians. You’ve got to give them… there’s got to be enough structure so that we can all work together in driving that startup forward to success, but enough freedom for each person to add their own flavor and also adapt it to the startup.

And then there’s this other aspect between — difference between a mentor and a coach. So a coach is paid to deliver something in a given time. So, ideally 10 weeks. A mentor on the whole, it’s pro bono. You are lucky because mentoring really should be done with at least two or three mentors in the room so that they keep themselves honest. [Probably not 14]

But the danger is if you have a single mentor who is; and off they hop and you’ve got your whole slide deck in pieces and you can’t get it back together again. So in Switzerland, because we have this history of the coaches from CTI and Swiss and Platinum, there is less appetite for coaching for mentoring from our high tech startups.

Ben Robinson: So maybe it was a question on mentoring then, which is what do you think? So if you — maybe express it in a different way, which is if you’re a startup and your eager to get a mentor, what would you advise a startup to look for in a mentor?

James Miners: The first thing would be real startup competence. I would ask or same with any new board member, investor, ask them for reference and then phone those people up. And startups are not smaller versions of large companies.

The other thing is understanding what kind of time they can commit. If it’s a little, everyone wants to give you advice, but what you ultimately want is connections to business and then coaching where you can really go deep.

You know how it is with brainstorming anything. There’ll be a few quick wins but, in an hour and a half meeting, how deep can you go? You can’t really start sculpting and changing a bit of your business out of that meeting, particularly a start up that’s been going for more than six months, which is most of our startups and that depth of work and appropriate actionable advice you can — you need to invest the hours there. And that’s when coaching really can pay off because that is their job.

Ben Robinson: Yes. So in short you’re saying go for coaches over mentors and if you go for a mentor, make sure that person, knows something about startups, not necessarily deep domain expertise and they can actually commit time consistently.

James Miners: Yes. So I will always have one lead coach and then get some mentors and try and use them for connections.

Ben Robinson: Yes, okay. And where do you stand on the whole debate about Europe? Because there’s a viewpoint that Europe’s massively lagging United States and China in terms of building next generation tech companies. Where do you sit on that, do you think — I know your viewpoint is very much Swiss centric, but do you have a view since you’ve worked all over Europe on whether Europe’s doing enough to create next generation digital age businesses?

James Miners: So I’m kind of a bottom up guy, so I’m always thinking what can I do to improve things and what are the gaps and can we do something to change them? Because a while back that was the narrative in Switzerland; we are not good enough and — okay, maybe that belief keeps you surging forward, but it doesn’t necessarily tell you what you need to be doing and more of and how to be doing it.

So I do think if there’s a miss message for Europe, then play to your strengths. Stop complaining that you’re not the United States or something like that because you’re not and you’d only be a pale imitation. So Europe and digital, well as David Galbraith said, we have a strength in design and then we also have a strength in privacy. So how can we bring those round to a more modern view of what the Internet is going to be?

And is there space for an internet that is not funded purely on advertising and your data, but rather maybe having privacy at the core and payments and then you see Swiss becoming a good place for privacy and also crypto, potentially micro-payments. So I don’t have the answer. But what I’ve seen in Switzerland where we’ve really gone from, my exit was the only exit in two years at the EPFL in 2009.

Now it’s every three months. Why? Because people kept on doing good stuff and we stopped trying to do B2C platforms that required huge networks to win and focused on deep tech, niched, B2B, export orientated stuff and then all of a sudden we start winning. And by the way, every now and then a unicorn starts popping up. So I think we’re moving in the right direction.

Ben Robinson: Are you excited that Facebook has started Libra here in Geneva?

James Miners: Well, it was funny because, we were having our team meeting a while ago and I say, look, they’re having privacy problems. So what’s the gold standard in privacy? Well, it’s crypto. So if you want to prove that you’re repositioning yourself. Well, that’s a good one. And if you want to do privacy and Crypto, then Switzerland is a good answer and Geneva. So I think that’s a result.

But the other interesting thing is it’s a Geneva entrepreneur coming back and this was one of the strategies of — [explain that? So is that not an angle that I picked up on]. So it turns out David Marcus comes from Geneva. [I didn’t know that]. Yes. So he co-founded Paypal, Facebook Messenger, and then the question is where do you want to live? And actually EPFL, that’s their strategy, to find Swiss émigrés in the US, and say, . And I think that’s a very smart approach it is…

Ben Robinson: Not many people have picked up on the angle, I don’t think. Just wanted to finish up by asking you — So first of all, I wanted to say that the Fongit events are excellent and we’ll be tweeting out a link to the Fongit event page. We will tweet out links to all of the publications that you’ve mentioned, all of the reports that contain all the great statistics you’ve been mentioning. I wanted to finish by asking you what your proudest achievement is in the time that you’ve been at Fongit. And it doesn’t have to be a single company that you’ve coached, although if you want to mention any great companies, that’s cool.

James Miners: So can I give you two? So first one was five years ago, I was speaking to our neighbours at the incubator, and we were talking about their strategy for the next five years. And together we had this dream we like, could our region be one of the top 30 startup ecosystems in the world? If we’ve done that… that would be amazing. And maybe one day, they will do it.

And literally six weeks ago, the global startup ecosystem report came out and there we are… number 22 in the world. And interestingly, it’s Geneva-Lausanne-Bern as a region. And in Life Scienses we are seventh. Yes, there was a startup genome report, which I mentioned that had studied 20,000 startups and came up with the first success criteria and some real metrics on startup success.

So they’ve always been a reference. So then coming in that was pretty, pretty powerful. And it shows that, it’s not about one start up. It’s about a whole region and other things I like is one great entrepreneur who was working for one company left that worked in another company that bankrupted, started out his own venture, which is doing quite well because our ecosystem is big enough and there’s a need for talent. It’s actually de-risked… your venture or if you’re working a startup that may not work, but we will want you for another one. And I think that’s a sign of the dynamic.

But privately, and this sounds really geeky, but one of the things I’m most proud about is when we developed a new incubation process and new incubation agreements, which were above and beyond what we’ve seen from the US National Business Incubator Association, or theEuropean one; say it’s just taking this profession of supporting startups to the next level and seeing Fongit go from 20 companies to 60 and this great dynamic atmosphere around that. And that’s really rewarding.

Ben Robinson: Fantastic. Well, I would like to thank you very much for your time, and I hope that our listeners feel the way I do, which is I think you’re having a profound impact on the ecosystem and if there was a medal that we could give you for contribution to the startup ecosystem, that would be great. So thank you both for being on the podcast and for everything you’re doing for fostering the ecosystem here.

James Miners: Thanks a lot.